Each year taxpayers must to report their rental income on their taxes. Often if a person is trying to obtain a mortgage, he will need to provide the rental income to the lender. The taxpayer can simply look at his previously reported income. Form 1040 Schedule E will have show the taxpayer how to calculate his rental income. By following Form 1040 Schedule E, the calculation is simplified, as the Internal Revenue Service provides a list of items of things to include in the income determination.
Add together any rents your received and royalties you received during the year from any rental properties. This is the total revenue received from rental properties.
Subtract any expenses associated with the rental properties from the revenue received from rental properties. These expenses should have some direct connection to the rental property, such as advertising to fill a vacancy of the rental property or maintenance fees from the rental property.
Use IRS Form 4562 to calculate your depreciation expense for the year. Then deduct this amount from the amount calculated in Step 2 to determine the total income from the rental property.
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