Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year.
If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. Include it in your income when you receive it. For more information Visit our Office or Ask to our Accountants.
You may qualify to exclude from your income all or part of any gain from the sale of your main home. Your main home is the one in which you live most of the time.
To claim the exclusion, you must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, you must have:
- Owned the home for at least two years (the ownership test)
- Lived in the home as your main home for at least two years (the use test)
If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).
- If you can exclude all of the gain, you do not need to report the sale on your tax return
- If you have gain that cannot be excluded, it is taxable.
If you have more than one home, you can exclude gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.
If you dispose of depreciable or amortizable property at a gain, you may have to treat all or part of the gain (even if otherwise nontaxable) as ordinary income.
This includes the date and manner of acquisition, cost or other basis, depreciation or amortization, and all other adjustments that affect basis.
On property you acquired in a nontaxable exchange or as a gift, your records also must indicate the following information:
- Whether the adjusted basis was figured using depreciation or amortization you claimed on other property.
Income and losses on a tax return are divided into two categories:
- Passive: Rentals and businesses without material participation. A limited partner is generally passive due to more restrictive tests for material participation. As a result, limited partners will generally have passive income or losses from the partnership.
- Non-passive: Businesses in which the taxpayer materially participates. Also, salaries, guaranteed payments, 1099 commission income and portfolio or investment income are deemed to be non-passive.
You generally must include in your gross income all amounts you receive as rent. Rental income is any payment you receive for the use or occupation of property.
Expenses of renting property can be deducted from your gross rental income. You generally deduct your rental expenses in the year you pay them. Our Accountants can give you information about the expenses you can deduct if you rent a condominium or cooperative apartment, if you rent part of your property, or if you change your property to rental use. For more information Visit our Office or Ask to our Accountants.
Report rental income on your return for the year you actually or constructively receive it, if you are a cash basis taxpayer. You are a cash basis taxpayer if you report income in the year you receive it, regardless of when it was earned. You constructively receive income when it is made available to you, for example, by being credited to your bank account. For more information Visit our Office or Ask to our Accountants.
If you receive property or services, instead of money, as rent, include the fair market value of the property or services in your rental income.
If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary. For more information Visit our Office or Ask to our Accountants.
You may deduct home equity debt interest as an itemized deduction if all the following conditions apply:
- You pay the interest in the tax year.
- The debt is secured with your home
- The home equity debt is limited to the fair market value of the home reduced by home acquisition debt, up to a total of $100,000 ($50,000 if filing as married filing separately).
If you have any personal use of a vacation home or other dwelling unit that you rent out, you must divide your expenses between rental use and personal use. If your expenses for rental use are more than your rental income, you may not be able to deduct all of the rental expenses. For more information Visit our Office or Ask to our Accountants.