What do I do about my tax return now that I am renting a house?

Leif Andreason: Instead of answering your question directly, I'm going to offer a bit of un-asked-for advice: Please do not try to figure this out on your own. Filing a return with rental income can be tricky. There are many things to consider and what may seem like an obvious interpretation of the rules may not be the right interpretation. Spending a little money on a qualified tax professional now can save you much money and headache in the long run. At least engage the services of a tax professional for the first year to get everything set up for you and consult with you on the types of deductions you can take and the records you must keep....Show more

Peter Lapoint: OK, you are not renting the house, you are renting it OUT. Huge difference. If you were renting it, it would have no tax consequences at all as a tenant. You're a landlord now, so you're renting it out.You report rental income and expenses on Form 1040, Schedule E. You include the gross rents! and any expenses such as mortgage interest, property taxes, insurance, minor repairs, maintenance, rental agent commissions, property management fees, utilities that you paid, depreciation, etc. You need receipts and/or records for all expenses.You depreciate the improvements to the property, never the land, so you need to break out land and improvements separately. For residential real estate you depreciate it on a 27.5 year straight line schedule. Your basis for depreciation is the lesser of your original adjusted cost basis or the fair market value when you converted it to rental use. If you owned it for a while prior to the conversion, you should get a certified appraisal from a local licensed appraiser. You also depreciate any major repairs, renovations, and improvements on the same 27.5 year schedule. Information from the assessor's office is largely useless for this. You need your original adjusted cost basis and an appraisal to establish your basis for deprec! iation.I'd strongly suggest a consult with a local CPA or EA t! o set up your bookkeeping, with particular emphasis on your depreciation schedules. Depreciation is subject to recapture when you sell and errors today can be very expensive even decades down the road when you sell. You also want them to explain the passive activity loss limitation rules and make sure that you actively participate in the management of the property. Errors here again can be very costly....Show more

May Stands: Hire a pro for the first year, otherwise you will mess something up. Once you have the groundwork in place, you will be good to go.