Rental property taxes, done right

Rental income is reported on Schedule E. You can deduct operating expenses and depreciate the building (not the land) over 27.5 years for residential property. Losses are usually passive, but many owners who actively participate can deduct up to $25,000 against other income, phasing out between $100,000 and $150,000 of modified AGI.

What Jerome looks at

• Depreciation set up correctly from day one
• Repairs vs. improvements
• Passive loss limits and carryforwards
• Real estate professional status
• Short-term rental rules
• Selling: depreciation recapture and capital gains
• 1031 exchanges
• Record keeping that survives an audit

Short-term rentals in Florida

Short-term rentals play by different rules. For federal tax, an average guest stay of seven days or less can take the property out of the usual rental rules, for better or worse. In Florida, rentals of six months or less also owe state sales tax and county tourist development taxes.

When you sell

Gain on a rental you held more than a year is generally taxed at long-term capital gains rates, except the part that comes from depreciation you took, which can be taxed at up to 25%. A properly structured 1031 exchange can defer the tax. Plan before you list, not after you close.

Planning a sale this year? See tax planning and estimated taxes.

Common questions