TAX PREPARATION GUIDE FOR RENTAL PROPERTY OWNERS

Whether you’re new to rental income or just need guidance on tax reporting, we’re here to help make the process smooth and stress-free.

To accurately file your tax return, you’ll need to gather some key details about your property, income, and expenses. Its best to track your income and expenses in a ledger (like Excel) and keep your receipts. This guide will walk you through exactly what you should be tracking. 

Before we dive into the numbers, let’s start with the basics! To properly report your rental income and expenses, we need to determine how much of your home is used for rental purposes. This helps ensure accurate tax reporting and allows you to claim the right deductions.

Here’s what you'll need to document:

• Total square footage of your home
• Square footage used for rental purposes
• Number of days rented vs. personal use days
• Original purchase price of the property
• Land value (from tax records)
• Capital improvements made since you've owned the home
• Percentage of home allocated to rental use

For tax purposes, rental income is reported on a cash basis, meaning you should track the actual payments you’ve received—not just amounts billed to tenants. This includes rent payments, advance payments, and certain security deposits that you keep. Keeping clear records of your cash collections ensures accurate reporting and helps maximize deductions. 

Here’s what you'll need to track:

• Total rental income collected (cash, checks, electronic payments)
• Any non-refundable or forfeited security deposits

Owning a rental property comes with costs, and the good news is that many of these expenses can be deducted to reduce your taxable income. 

For tax purposes, rental expenses are reported on a cash basis, To make sure you get the most out of your deductions, track and organize the actual payments made for all rental-related expenses throughout the year.

Here’s what you'll need to track:

• Mortgage Interest – Reported from Form 1098
• Property Taxes – Deductible real estate taxes paid to the county/city.
• Insurance – Landlord insurance, liability insurance, flood, etc.
• Repairs & Maintenance – Includes fixing plumbing, painting, HVAC repairs, etc.
• Utilities – If the landlord pays for water, gas, electricity, trash, etc.
• Property Management Fees – If you hire a property manager.
• Legal & Professional Fees – Attorney fees, accountant fees related to the rental.
• Advertising – Costs to list and market the rental property.
• HOA Fees – If the property is in a homeowners’ association.
• Pest Control & Security – Ongoing extermination and security monitoring.
• Capital Improvements – Major improvements (new roof, HVAC, remodeling) 
• Mileage or Actual Costs – If you travel to manage the rental (e.g., inspections, repairs).
• Travel – Airfare, lodging, and meals if traveling for rental property management.
• Mortgage Interest – Interest on a loan used to buy or improve the rental.
• Credit Card Interest – If the card is used exclusively for rental expenses.
• Supplies – Cleaning supplies, tools, light bulbs, etc.
• Home Office Deduction – If you manage your rentals from a dedicated space in your home.
• Books & Education – Real estate courses or subscriptions related to managing rentals.

Capital improvements on homes refer to significant, long-term upgrades or renovations that increase the value, extend the life, or enhance the functionality of a property. These improvements generally provide benefits over several years and can include things like: 

• Adding a new roof
• Installing energy-efficient windows or insulation
• Remodeling kitchens or bathrooms
• Adding a new room or finishing a basement
• Installing a new HVAC system
• Upgrading plumbing or electrical systems

These improvements are different from routine repairs or maintenance, which are considered current expenses and don’t increase the home’s value in a significant or long-term way. Capital improvements can also impact property taxes.

 Here are more examples of improvements that increase value:

Additions
Bedroom
Bathroom
Deck
Garage
Porch
Patio

Lawn & Grounds
Landscaping
Driveway
Walkway
Fence
Retaining wall
Swimming pool

Systems
Heating system
Central air conditioning
Furnace
Duct work
Central humidifier
Central vacuum
Air/water filtration systems
Wiring
Security system
Lawn sprinkler system

Exterior
Storm windows/doors
New roof
New siding
Satellite dish

Insulation
Attic
Walls
Floors
Pipes and duct work

Plumbing
Septic system
Water heater
Soft water system
Filtration system

Interior
Built-in appliances
Kitchen modernization
Flooring
Wall-to-wall carpeting
Fireplace

If ever you have any doubts about an expense, record it in your ledger. We can provide tax guidance, but its best not to leave any deductions on the table.