What Constitutes Revenue?

Generally, rental income is defined as any revenue you receive from occupancy or use of residential property. Rent, obviously, is included in that revenue. Many owners are surprised to learn revenue also includes rent advancements, expenses paid by a tenant and any security deposits not returned to tenant. In fact, revenue can also include amounts paid to cancel a lease, even if you had to sue defendant to get it.

Yeah, Yeah, But What Can I Deduct?

Tax deductions associated with rental properties are strikingly similar to those found in any business. Technically, you can deduct any expense reasonably necessary to “manage, conserve or maintain” property. Obvious deductions include mortgage payments, cleaning expenses, insurance premiums, service payments such as landscape maintenance, repairs, maintenance, etc. Overlooked rental property deductions include:

1. Expenses incurred in finding tenants,

Unfortunately, IRS increased its rate of auditing individuals in 2003 when compared to 2002. The increase was approximately 14%, but still constituted only 6.5 audits for every 1,000 taxpayers. Put another way, risk of being audited on your personal return is less than 1 in 100.

In regard to above numbers, it is important to note that IRS pursued a large number of “correspondence audits” instead of face–to–face meetings. As name suggests, these audits consists of correspondence being sent from IRS to a taxpayer regarding a contested issue. The taxpayer can respond to audit or pay accessed amount depending upon request of IRS.

Favorable Audit News For Businesses