As the U.S. housing market has continued to struggle with plummeting property values, more homeowners who originally intended to sell their homes are deciding to rent them out instead. Still others have decided to rent out a portion of the home they currently live in as a means of generating cash to cover some of the escalating energy and maintenance costs that make it harder to meet mortgage payments.
Whether homeowners turn to renting by choice or are forced into it due to unforeseen circumstances, becoming a landlord has tax advantages they need to be aware of. Becoming an "accidental landlord" carries major responsibilities, but also significant rewards.
Account for Rental Income
The Internal Revenue Service rules for reporting rental income apply to second homes, vacation homes and even cover renting a room within your primary residence. If you rent any space for 14 days or less during the year, the IRS gives you a pass, and you don't have to report it. But rent for 15 days or more, and you must report the added income on the Schedule E: Reporting Rental Income and Loss form. Accounting for rental income is easy because you can keep copies of the deposited rent checks from your tenants.