Claiming rental income, and taxed/recognized.

[Ben Kirchner]

I'll be closing on my first rental property in January.  Therefore, it won't be until next year that this will impact my taxes.  I was curious to how people claim their rental income, and how it's taxed.  Is it taxed along with employment income?  Taxed separate and different?  Is claiming rental income for an investment property different than claiming for something like house hacking in a single family residence?

I hadn't thought of this until recently when speaking to a lender, who said in order for rental income to be recognized in your debt-to-income ratio, you would need a year of rental income documented on your taxes.

I appreciate the helpful input!

[Andy D.]

Huh? What do you mean by "claiming rental income"? It's income that you yourself - assuming you're not running the business in a corporation that is its own tax subject - have to declare in your personal tax return. It adds to your overall income from e.g. W2 (obviously?). There are, of course, rules related to this specific type of income (and the associated [deductible] cost) as well as specific forms such as, most importantly, Schedule E. That is - re your point about DTI - how you document rental income.

I should emphasize that you should definitely involve an REI savy CPA (before the year you start the business is over!) as there is much more to this than just "income". You will be running a business and you do not want to mess with the IRS by doing it wrong when it comes to taxes. Good luck!