Do You Have to Report Rental Income to the IRS?

Yes, reporting rental income to the IRS is required on your federal return, because 26 U.S.C. § 61 counts rent as gross income no matter how you collect it.¹ The only blanket exception is a narrow rule for homeowners who rent their place fewer than 15 days a year. Everything else — every payment type, and a surprising number of non-cash arrangements — belongs on your return.

What Counts as Rental Income

Monthly rent is the obvious piece, but several other payments count too. Getting this wrong is one of the fastest ways to trigger a mismatch notice, because tenants, payment platforms, and property managers may independently report the same money.

Advance rent. Any rent you receive before the period it covers is income in the year you get it. If a tenant pays first and last month’s rent when signing in December, both payments hit that tax year.²
Kept security deposits. A deposit you hold and plan to return is not income. The moment you keep any portion for damages or a broken lease, that amount becomes reportable income for that year.³
Tenant-paid expenses. If your tenant covers your property taxes, mortgage payments, or another bill that’s normally yours, those payments are rental income to you.³
Bartering. When a tenant provides services instead of cash, you report the fair market value. A tenant who paints your building in lieu of $1,000 in rent has effectively paid you $1,000.⁴

If you received something of value because someone used your property, the IRS treats it as income regardless of the form.

The One Time You Don’t Report It

Under 26 U.S.C. § 280A(g), if you use a home as your personal residence and rent it out for fewer than 15 days during the year, you don’t report the rental income at all.⁵ The rate doesn’t matter. You could collect $5,000 a night and owe nothing on it, as long as you stay under the 15-day ceiling.

The trade-off: you also cannot deduct any rental expenses tied to those days. No writing off a share of mortgage interest, insurance, or cleaning against that income. The statute blocks both sides in one stroke.⁵

To qualify, you have to actually use the home as a residence during the year. The IRS treats you as a resident if your personal use exceeds the greater of 14 days or 10 percent of the days you rent the property at fair value.⁶ Once you cross the 15-day rental threshold, full reporting and deduction rules apply.

Expenses You Can Subtract

Reporting income without claiming expenses is counting one side of the ledger. Ordinary and necessary costs of managing and maintaining a rental are deductible, and they can dramatically reduce what you actually owe.

Operating Costs

Standard categories include mortgage interest, property taxes, insurance premiums, advertising, property management fees, and utilities you pay for tenants.² Mileage to the property for maintenance or management runs at the 2026 IRS business rate of 72.5 cents per mile.⁷ Local licensing and registration fees are also deductible.

Repairs vs. Improvements

This distinction trips up more landlords than almost anything else. A repair keeps the property in its current condition: fixing a leaky faucet, patching drywall, repainting a room. You deduct repair costs in full in the year you pay them. An improvement makes the property better, restores it to like-new condition, or adapts it to a different use. Adding a deck, replacing an entire roof, or modernizing a kitchen are improvements. Those costs get capitalized and depreciated over time rather than deducted at once.²

Depreciation

Residential rental buildings are depreciated over 27.5 years using the straight-line method.² You depreciate the building’s cost, not the land. And you’re effectively required to take the deduction whether you claim it or not: when you sell, the IRS treats you as if you had. That depreciation gets “recaptured” at sale and taxed at a rate of up to 25 percent, higher than the long-term capital gains rate most sellers expect. Planning for recapture from day one prevents a bad surprise at closing.

Why a Rental Loss Usually Won’t Cut Your Other Taxes

Rental real estate is a passive activity under federal tax law, so losses generally cannot offset wages, salary, or other active income. Excess losses are suspended and carried forward.⁸ New landlords often assume a paper loss automatically shrinks their tax bill. It usually doesn’t.

There’s one significant carve-out. If you actively participate in managing the property — approving tenants, setting rental terms, and authorizing repairs in a meaningful way — you can deduct up to $25,000 in rental losses against other income.⁸ You must own at least 10 percent of the property and cannot be a limited partner.⁹

The $25,000 allowance phases out as income rises. Once modified adjusted gross income exceeds $100,000, the allowance shrinks by $1 for every $2 above that threshold. By $150,000 it’s gone entirely. Married couples filing separately who lived together at any point during the year get no allowance at all.¹⁰ Above the phase-out, suspended losses sit until you generate passive income or sell the property in a fully taxable transaction.

Self-Employment Tax and the 3.8% Investment Tax

Good news for most landlords: rental income from real estate is generally not subject to self-employment tax. Federal law specifically excludes real estate rentals from self-employment earnings, so you won’t owe the 15.3 percent Social Security and Medicare tax on rental profits.¹¹ Exceptions apply if you’re a real estate dealer who buys and sells properties as inventory, or if you provide substantial services to tenants (hotel-style operations with daily cleaning and meals). Ordinary landlords don’t fall into either category.

Higher earners face a separate levy. The 3.8 percent Net Investment Income Tax applies to rental income when modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly).¹² The tax hits the lesser of your net investment income or the amount by which MAGI exceeds the threshold.

How to File

Schedule E

Schedule E (Form 1040) is where nearly all individual landlords report rental income and expenses.¹³ For each property you enter the street address, property type, number of days rented at fair value, and number of days used personally. Then list total rents received and itemize deductible expenses. The net profit or loss flows onto Form 1040.

If you own multiple properties, each gets its own column. Separate bank accounts, or at least separate ledgers, make the process much less painful. Pull rent receipts, bank statements, expense invoices, and mortgage interest statements before you start.

Form 1099-K from Payment Platforms

If you receive rental payments through a platform like Airbnb, Vrbo, or a digital payment processor, you may receive a Form 1099-K. The reporting threshold has reverted to $20,000 in gross payments and more than 200 transactions in a calendar year; the planned $600 threshold from the American Rescue Plan Act was never implemented and has been permanently rolled back.¹⁴ Even if you fall below the threshold and don’t receive a 1099-K, you still owe tax on the income. The form is a reporting mechanism for the platform, not the trigger for your obligation.

Records

The IRS generally has three years from the date you file to audit a return, so keep rental-related receipts, bank statements, and expense records for at least that long. If you underreport income by more than 25 percent of the gross income shown on your return, the window extends to six years. For fraudulent or unfiled returns, there is no time limit.¹⁵

Penalties for Leaving Rental Income Off Your Return

The IRS treats unreported rental income like any other unreported income, and the penalties stack. Filing late brings a failure-to-file penalty of 5 percent of the unpaid tax for each month the return is overdue, up to 25 percent.¹⁶ A separate failure-to-pay penalty of 0.5 percent per month accumulates on any unpaid balance, also capping at 25 percent.

File on time but understate your income through negligence or a substantial understatement, and the accuracy-related penalty is 20 percent of the underpaid tax.¹⁷ Interest compounds on top from the original due date. Payment platforms, property managers, and tenants who claim business deductions all generate paper trails that feed automated matching systems, so unreported rent is easier to catch than it used to be. Reporting the income and claiming the deductions you’re entitled to is almost always cheaper than the alternative.

1
Office of the Law Revision Counsel. 26 USC 61 – Gross Income Defined
2
Internal Revenue Service. Publication 527 (2025), Residential Rental Property
3
Internal Revenue Service. Topic No. 414, Rental Income and Expenses
4
Internal Revenue Service. Topic No. 420, Bartering Income
5
Office of the Law Revision Counsel. 26 USC 280A – Disallowance of Certain Expenses in Connection with Business Use of Home, Rental of Vacation Homes, Etc
6
Internal Revenue Service. Topic No. 415, Renting Residential and Vacation Property
7
IRS. 2026 Standard Mileage Rates
8
Office of the Law Revision Counsel. 26 USC 469 – Passive Activity Losses and Credits Limited
9
Internal Revenue Service. Instructions for Form 8582
10
Internal Revenue Service. Publication 925 (2025), Passive Activity and At-Risk Rules
11
Office of the Law Revision Counsel. 26 USC 1402 – Definitions
12
Internal Revenue Service. Net Investment Income Tax
13
Internal Revenue Service. About Schedule E (Form 1040), Supplemental Income and Loss
14
Internal Revenue Service. IRS Issues FAQs on Form 1099-K Threshold Under the One, Big, Beautiful Bill; Dollar Limit Reverts to $20,000
15
Internal Revenue Service. Topic No. 305, Recordkeeping
16
Internal Revenue Service. Failure to Pay Penalty
17
Internal Revenue Service. Accuracy-Related Penalty