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Your rental income is subject to federal and state taxes. Not only will you need to report the income on your state return, but you may also need to pay taxes to the state where the home is located. You can deduct rental related expenses on each return to help reduce the tax burden.
| State | Tax Rate |
|---|---|
| Arkansas | 5.90% |
| California | 13.30% |
| Colorado | 4.55% |
| Connecticut | 6.99% |
On the other hand, if you’re only looking to be a (very) part-time landlord, you can avoid taxes on your rental income if you rent out your property for 14 or fewer days per year. Those 14 days don’t have to be consecutive; you just need to stick to that 14-day limit to not pay taxes on the income you take in.
The short answer is that rental income is taxed as ordinary income. If you’re in the 22% marginal tax bracket and have $5,000 in rental income to report, you’ll pay $1,100. … In fact, a profitable rental property might show no income, or even a loss, for tax purposes.
Consequences of not reporting rental income can include fines, interest, a lien on your property or even jail time.
The IRS can find out about unreported rental income through tax audits. The goal of an IRS tax audit is to review and examine the financial information and accounts of an individual to confirm that income was reported correctly.
No, there are no circumstances where you can deduct rent payments on your tax return. Rent is the amount of money you pay for the use of property that is not your own. Deducting rent on taxes is not permitted by the IRS.