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How to Calculate Rental Income Expenses

Income received from your rental must be reported on your income tax return. To determine whether you have a positive cash flow, you must deduct your expenses for the property from your gross rental receipts. Rental expenses are also known as rental property tax deductions and can greatly reduce your tax liability. Strive to keep clear, understandable and easily accessible records, and have a good system in place, such as software or ledger sheets.

Instructions

    1

    Total your rental income received in the year. This includes advance rent paid, security deposits or pet deposits. If the tenant pays for expenses to your rental, this must be included as income.

    2

    Calculate your receipts for maintenance and repair. Include expenses such as plumbers, yard maintenance, painters and carpet cleaners. Itemize your expenses for insurance and property taxes.

    3

    Include the mortgage interest you paid during the year. You will receive Form 1098 Mortgage Interest Statement from your lender. Calculate your credit card interest if you used one to pay for services or goods for the rental property. Business credit card interest is tax-deductible.

    4

    Itemize expenses for travel to and from the rental property. If you live out of state, deduct airfare or gasoline, plus hotel expenses if your trip is dedicated exclusively to your business as landlord.

    5

    Add your administration and business expenses, such as legal fees or tax preparation, home office fees, equipment, property management, advertising, gifts and homeowners association fees. Calculate your rental property's depreciation; you are permitted to claim depreciation beginning the first month that the property was available for rent.

    6

    Go through your bank statements or canceled checks to ensure you haven't missed any expenses related to your rental property.

    7

    Deduct all your expenses from your gross rental income if the rental property was rented out for the full tax year; if not, prorate the use of the rental and deduct accordingly.


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