Is the amount of rents received less any expenses relating to the property’s management and maintenance? This is always 100% taxable personal income unless the property has been placed in a business entity.

These are not considered taxable income as long as you intend to return them to your tenant at the end of the lease period. Deposits for the last month’s rent are taxable because they are rents paid in advance. If you keep any portion of a security deposit then that will become taxable income for the year in which the lease terminated.

All income earned must be recorded on a cash basis – meaning you record it as income at the time it is received rather than when it is earned.

Improvements to your property must be depreciated over the useful life of the improvement as defined by the IRS. Improvements are actions that materially add to the value of the property or substantially prolong its life. These would include additions, pools, modernizing rooms, installing new mechanical systems or energy-saving materials, and even water filtration systems.

Unlike improvements, repairs are deductible in the year in which they were paid. Repairs are defined as those actions that keep the property in good operating condition. Examples of repairs include minor painting; leaky plumbing; replacing windows; and fixing things such as fixtures, floors, and gutters.

All expenses incurred and paid by you to manage, conserve, and maintain rental properties are deductible in the year paid. Even if your rental property is temporarily vacant the expenses are still deductible while the property is vacant and held out for rent. All expenses deducted must be ordinary and necessary and not extravagant. Some common deductible expenses include:

• Advertising
• Cleaning and maintenance
• Commissions
• Depreciation
• Homeowner association dues
• Insurance premiums
• Interest expense
• Local property taxes
• Management fees
• Pest control
• Professional fees
• Rental of equipment
• Rents you paid to others
• Repairs
• Supplies
• Trash removal fees
• Travel expenses
• Utilities
• Yard maintenance

If you deduct travel expenses you must allocate your expenses between rental and non-rental activities. It is very wise to keep good records because to deduct any expense you must be able to document the deduction. That means keeping current and accurate records of your expenses paid including all receipts, checks, and bank statements. For more information see IRS Topic 414: Rental Income and Expenses .