Dear Tax Talk,
I rented my primary residence so that I wouldn't go into foreclosure and I moved back to my parents' home with my child. Is the income I get to pay the mortgage considered rental income? Do I have to pay tax on rental income even though I have no other income?
Yes, the income you receive from your rental property that is used to pay your mortgage is considered income.
Whether or not you have to pay taxes on it depends on several things, such as your filing status and whether or not you are showing a profit for this property.
Welcome to the world of being a landlord, as you are now going to have to track your income and expenses on this rental property. While you have to report the rental income you receive, you will also be able to deduct the expenses related to the property such as mortgage interest, property taxes, insurance and additionally, depreciation. The IRS form you are going to need to start with is Schedule E, Supplemental Income and Loss. You should also go to the IRS website and take a look at IRS Publication 527, Residential Rental Property, as it has lots of great information for you.
Please keep in mind that if you just started renting the home out this year, you may have to allocate some of your expenses between the time you used it personally and the time you have rented it out. The personal portion of the mortgage interest and property taxes will have to be reported on Schedule A, and the rental portion will be reported on Schedule E.
Thanks for the great questions and best of luck in saving the home from foreclosure.
Ask the adviser
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.
Copyright 2014, Bankrate Inc.