Question

I have a question about reporting loss on rental property. If I rented out my home for less than my mortgage payment, do I have to report the rental income?

Answer

Yes, you must claim the income even if you are reporting loss on rental property. The payment is a rent payment.

If the payment is for the fair rental value of the property:

  • Report the income on Schedule E.
  • Deduct these items on Schedule E to the extent of your rental income:
    • Mortgage interest
    • Real estate taxes
    • Other rental expenses

If reporting loss on rental property, it might be limited by the at-risk rules and passive-loss limits. However, a special allowance exists for the passive-loss limits.

If the monthly rent payment is less than the fair rental value of the property, you’re not renting for a profit and all of these apply:

  • You must enter the rental income on Form 1040, Line 21.
  • If the rental home is a first or second home, you can fully deduct the mortgage interest and real estate taxes on Schedule A.
  • You’ll deduct other rental expenses on Schedule A as miscellaneous deductions subject to 2% adjusted gross income (AGI) limitations. (Ex: rental operating expenses and depreciation) However, you can’t:
    • Deduct those expenses that are more than rental income
    • Carry over unclaimed expenses to the next year

 

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