Updated October 24, 2026. Quick answer: Tax Topic 414 is the IRS page on rental income and expenses. Cash or the value of property or services you receive for the use of real estate or personal property is taxable rental income, and in general the expenses of renting can be deducted from it. Real estate rentals generally go on Schedule E.
Quick reference
| Item | What the IRS topic says |
|---|---|
| What is rental income | “Cash or the fair market value of property or services you receive for the use of real estate or personal property is taxable to you as rental income.” |
| Real estate form | “You can generally use Schedule E (Form 1040), Supplemental Income and Loss to report income and expenses related to real estate rentals.” |
| When income counts | “they count their rental income as income when they actually or constructively receive it, and deduct their expenses when they pay them.” |
| Advance rent | “Generally, you include any advance rent paid in income in the year you receive it regardless of the period covered or the method of accounting you use.” |
| Depreciation start | “You begin to depreciate your rental property when you place it in service.” |
What counts as rental income
The topic notes that most individuals use the cash method. It says “Most individuals operate on a cash basis” and lists what rental income includes. One item is “If your tenant pays any of your expenses, those payments are rental income.” Another is advance rent, quoted in the table above.
Security deposits get a careful paragraph. The topic says “Don’t include a security deposit in your income if you may be required to return it to the tenant at the end of the lease.” It adds “If a security deposit amount is to be used as the tenant’s final month’s rent, it is advance rent that you include as income when you receive it, rather than when you apply it to the last month’s rent.”
Which form to use
For real estate the topic points to Schedule E. It also describes an exception: “If you provide substantial services that are primarily for your tenant’s convenience, report your income and expenses on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship).”
Personal property is handled separately. The topic says “Report income and expenses related to personal property rentals on Schedule C (Form 1040) PDF, if you’re in the business of renting personal property.” For people who are not in that business, it says “Report income on line 8l and expenses on line 24b of Schedule 1 (Form 1040), Additional Income and Adjustments to Income PDF, if you’re not in the business of renting personal property.” Our page on Schedule 1 line 8l covers that entry.
Expenses, limits and the net investment income tax
The topic gives examples of deductible expenses. It names “Depreciation”, “Repair costs” and “Operating expenses”. On repairs it says “Repair costs, such as materials, are usually deductible.” On depreciation it points readers to Form 4562, Depreciation and Amortization.
One limit is stated for cash basis taxpayers: “you can’t deduct uncollected rents as an expense because you haven’t included those rents in income.”
Losses and extra taxes come last. The topic says “your deductible rental expenses can be more than your gross rental income, subject to certain limits.” It also says “If you have a rental profit, you may be subject to the net investment income tax (NIIT).” For rentals that are also used as a home, it refers to Topic no. 415.
Where this comes from
This page describes the IRS page titled Topic no. 414, Rental income and expenses, as served on irs.gov on October 24, 2026. The IRS page shows that it was last reviewed or updated on 24 Sep 2026. The IRS can change a topic after we read it, and the IRS page controls. General information, not tax or legal advice.
Common mistakes
- Treating every security deposit as income. The topic says “Don’t include a security deposit in your income if you may be required to return it to the tenant at the end of the lease.”
- Waiting to report advance rent until the period it covers. The topic says it is included “in the year you receive it regardless of the period covered”
- Deducting rent a tenant never paid. The topic says “you can’t deduct uncollected rents as an expense”
- Assuming all rentals go on Schedule E. The topic points to Schedule C when “you provide substantial services that are primarily for your tenant’s convenience”
Related: IRS tax topics by number, Schedule 1 line 8l personal property rental, Schedule E line 1, Schedule E lines 23a to 26, Form 4562, Form 8960, and Rental income in retirement.
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Answer againSources
- IRS, Topic no. 414, Rental income and expenses (irs.gov): https://www.irs.gov/taxtopics/tc414
- IRS, Tax topics index (irs.gov): https://www.irs.gov/taxtopics
Read from the IRS pages linked above on October 24, 2026. General information, not tax or legal advice. The IRS topic page and the instructions for your own form control, and your own facts decide the outcome.