How is rental income taxed when you have a mortgage

If you own rental real estate, you should be aware of your federal tax responsibilities. All rental income must be reported on your tax return, and in general the associated expenses can be deducted from your rental income.

If you are a cash basis taxpayer, you report rental income on your return for the year you receive it, regardless of when it was earned.

As a cash basis taxpayer you generally deduct your rental expenses in the year you pay them.

How to pay no taxes on rental income

If you use an accrual method, you generally report income when you earn it, rather than when you receive it and you deduct your expenses when you incur them, rather than when you pay them. Most individuals use the cash method of accounting.

Below are some tips about tax reporting, recordkeeping requirements and information about deductions for rental property to help you avoid mistakes.

What is considered rental income?

You generally must include in your gross income all amounts you receive as rent.

Rental income is any payment you receive for the use or occupation of

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