Income

• Generally, you must report rental income in the year it is received if you report on a cash basis accounting method. The accounting method determines how and when you report income and expenses. There are four accounting methods to choose from, however once you have selected a method, you must use that same method each year. Rental income is any rent, or advanced rent (if deposited), as well as any property or services traded in place of rent (such as labor to maintain or improve the property) that you received. A security deposit is not included in rent, if you intend to return it.
  
  

Expenses

• There are dozens of deductions that you may be eligible to take for your rental property. Generally, the expenses you paid during the year may be deducted. These may include property taxes, mortgage interest, cleaning, advertising, repairs, rent (if renting your property from someone else), supplies, home office expenses and utilities. Some expenses, such as property, must be depreciated over 27.5 years.
  
  

Personal Use

• If you used your home for your personal use, you will need to divide the expenses by how many days the unit was rented and how many days it was used for personal use. Your home is considered as being used for personal use if you used it for more than 14 days or 10 percent of the number of days that it was rented at the fair market value. Renting your property for less than the fair market value must also be included as personal use. Don't include days that you spend in your property fixing it up. If your rental property is considered to have been used for personal use, you cannot report a loss. However, you may carry over rental property losses that were not deducted into the next year.
  
  

Selling

• Rental properties sold within the first year will incur higher taxes, since short-term capital gains are taxed at your current income rate. The tax rate on long-term capital gains caps at 15 percent. However, after 2010, the rate may increase to 20 percent. Refrain from selling your rental property within the first year to save a significant amount in taxes.