December 7, 2011
Schedule E on 1040 for reporting rental Income from property
The rental income received by an individual is reported on Schedule E on Form 1040. The way it is reported is very simple if the rental income information is maintained in a very organized way. A very good way of organizing the rental information is by maintaining a log book/ spreadsheet and naming the columns as follows:
- Item name
- Invoice for rent due
- Expenses incurred on the properties(listed below in tax deductible expenses)
- Payment of rent received
- Deposit made in the bank
Also, for recording rental income from accounting point of view, you can make the following journal entry:
Entry when rent is due:
DR: rent receivables CR rent income
Entry when payment has been received:
DR cash or cash on bank Cr to rent receivables, this way you will close the rent receivables account because you received the expected amount.
Rental Income reporting in your tax return Form 1040
In taxation, if you have rented out your property, its considered to be a passive activity. In a way it means that even if you devote a substantial amount of time to selecting the right tenants, in repairs & inspection of the rental unit,still it is considered to be passive. The IRS has limited your losses from rental business to a maximum $25,000 per annum which includes losses from all your rental properties.
How the landlords should treat rental income property expenses on tax return Form 1040
The landlords can claim the following expense tax deductions:
- Interest
- Depreciation
- Travel
- Travel-long distance
- Repairs
- Employees costs
- Theft losses
- Insurance
- Legal fee
So, general expenses faced by landlords such as repairing or replacing a roof, or cleaning an apartment after a long-term tenant leaves. But whatever the expense is, even if it is more than $25,000 it can be deducted but at the max upto $ 25,000 from all the properties.The balance loss will be carried over to next year, which can be set off against any incomes in the next year.
There are several very good rental income softwares in the market that allow you to keep appropriate records for rental income reporting & Turbo tax is such a tax software that allows you to handle any kind of income reporting on your Form 1040. It helps you get more & over & above deductions against your rental income that you might have missed to take into account.


