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rental income

Rental income, which is taxable to you, is any cash or the fair market value of property or services you receive for the use of real estate or personal property. 

Most taxpayers count their rental income as income when they actually or constructively receive it and deduct their expenses when they pay them.

Rental income include:

  • Amounts paid to cancel a lease - The money you receive is rental income when a tenant pays you to cancel a lease, and is reported in the year you receive it.
  • Advance rent - Generally, any advance rent paid should be included in income in the year you receive it no matter what period it covered or the method of accounting you use.
  • Expenses paid by a tenant - If any of your expenses if paid by your tenant, those payments are considered rental income. You may also be able to deduct the expenses if they are considered deductible expenses.
  • Security deposits - It depends on if you keep part or all of the security deposit or you may be required to return it to the tenant. 

rental expenses

Generally, expenses of renting property can be deducted from your rental income.

Examples of rental expenses:

  • Depreciation - Allowances for exhaustion, wear and tear (including obsolescence) of property. You begin to depreciate your rental property when you place it in service. Some or all of your original acquisition cost and improvement costs can be recovered.
  • Repair costs - Expenses incurred to keep your property in good working condition. However, these expenses don't add to the value of the property.
  • Operating Expenses - Other necessary expenses for the operation of the rental property.

personal use

There are special rules relating to the real property rental that you also use as your main home or your vacation home.

US & Canada Tax - Lily Lo CPA Professional Corporation - Edmonton, Alberta

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