Life changes
You Became a Landlord: How Rental Income Is Taxed
Whether you bought a rental or kept your old house when you moved, renting it out adds a new schedule to your return and a set of records worth keeping from the first month.
Reviewed by LaToya Clark-Thompson, FounderLast updated
What changes on your return
Rental income and expenses go on Schedule E. You report all rent received, including advance rent and any security deposit you keep, and you deduct the costs of running the property:
- Mortgage interest (on the rental, not limited by the itemized deduction rules) and property tax
- Insurance, repairs, utilities you pay, HOA dues, advertising and property management fees
- Travel to the property for rental business, and supplies
- Depreciation on the building and on improvements, filed on Form 4562 in the first year. Land is never depreciated.
Depreciation is the expense people forget. It is allowed whether or not you claim it, and when you sell, the depreciation you were entitled to is taxed either way, so skipping it costs you twice.
Repairs, improvements and losses
A repair keeps the property in working order and is deducted the year you pay it: fixing a leak, patching drywall, replacing a broken window. An improvement adds value or extends the property’s life, such as a new roof or an HVAC system, and is depreciated over time. Some smaller purchases can be deducted at once under safe harbor elections we make on the return.
If expenses and depreciation exceed rent, the result is a loss, and rental losses are passive. If you actively participate (approve tenants, set rent, approve repairs), you may deduct some of the loss against your other income, but that allowance phases out at higher incomes. Losses you cannot use carry forward on Form 8582 until you have passive income or sell the property.
South Carolina and the old home
- A rental does not keep the lower legal residence property tax assessment. If you used to live in the home, tell the county, which will assess it at the higher rate for rental property.
- South Carolina taxes rent from property in the state even if you live elsewhere. See moving out of South Carolina.
- Short-term rentals can also bring local accommodations tax and South Carolina sales and accommodations tax on the stays. Our short-term rental tax services page covers that side.
If the rental used to be your main home, your eventual sale may still qualify for part of the home sale exclusion, but the depreciation will be taxed. See selling a home.
What to bring to your appointment
- The date the property was first available for rent
- Purchase closing statement, or your original cost and improvement records if it was your home
- Leases and a rent ledger, or Form 1099-K or 1099-MISC if rent came through an app or manager
- Form 1098 for the rental mortgage, property tax bills and insurance statements
- Receipts for repairs, improvements and supplies, sorted if you can
- Mileage records for trips to the property
A separate bank account for the rental makes all of this easier, and our bookkeeping service can keep the ledger for you if you own several properties.
Common mistakes, and when to get help
- Not taking depreciation, or depreciating the land
- Deducting an improvement as a repair
- Mixing rental and personal money in one account
- Assuming all losses are deductible right away
The first year of a rental sets up depreciation for every year after, so it is the most important one to get right. We prepare Schedule E, set up the depreciation schedule and carry it forward. If you own several rentals, see our real estate investor tax services. Start with tax preparation, or talk through tax planning before you buy the next one.
Frequently asked questions
Do I have to report rental income if I just rent out my old house?
Yes. All rent you receive is reported on Schedule E, along with your expenses and depreciation, even if it is your former home and even if the result is a loss. The rent is also South Carolina income if the property is here. The only common exception is renting out a home you also live in for a very short time during the year.
What happens if I do not claim depreciation on my rental?
You lose the deduction now and still pay tax on it later. When you sell, the IRS taxes depreciation that was allowed or allowable, meaning what you could have claimed even if you did not. If you have skipped it in past years, it can usually be caught up with an accounting method change or amended returns. Bring your prior returns and we check.
Is a new roof on a rental a repair or an improvement?
A full new roof is usually an improvement, which is depreciated over time rather than deducted at once. Patching a leak or replacing a few shingles is a repair, deducted in the year paid. Some routine maintenance and smaller items can be deducted right away under safe harbor elections. Bring the invoices with a short note on what was done.
Can I deduct a rental loss against my W-2 income?
Sometimes. Rental losses are passive, but if you actively participate in managing the property, part of the loss can offset wages and other income. That allowance shrinks and then disappears as income rises. Losses you cannot use now carry forward on Form 8582 and are released when you have passive income or sell the property. We track the carryforward each year.
Not the question you had? The full tax FAQ covers more ground, and our client reviews say what the work is actually like.
Related pages
You bought a home
Mortgage interest, points, property tax, itemizing and the SC primary residence filing.
Learn moreYou sold a home
The main home exclusion, Form 1099-S, basis and improvements, and when a sale is taxed.
Learn moreYou moved out of South Carolina
The final part-year SC return, income SC still taxes and keeping your new state straight.
Learn moreYou started a side hustle
Side income next to a W-2: Schedule C, self-employment tax, expenses and estimated payments.
Learn morePart of Life Changes & Your Taxes. Not sure which service fits? Answer a few questions.
Tell us what you need
Send a short note about your situation and we’ll come back to you with a straight answer — whether that’s a quote, a next step, or a referral if it isn’t something we handle.
Prefer to talk it through first? Book a consultation and we’ll find a time, in the Easley office or virtually.
Something changed? Bring it to us before you file.
Call (864) 781-4035 or book a consultation, in the Easley office or virtually.