Consequences of not reporting rental income

[Lee V.]

This is just out of pure curiosity. What would happen if one decided not to report rental income? Let's say the tenant paid in cash each month. 

How would the IRS find out?

This is purely hypothetical, I'm not suggesting anyone do this. But curious of the reprocussions 

[Chris Mason]

Originally posted by @Lee V.:

This is just out of pure curiosity. What would happen if one decided not to report rental income? Let's say the tenant paid in cash each month. 

How would the IRS find out?

This is purely hypothetical, I'm not suggesting anyone do this. But curious of the reprocussions 

 Well, for one, it'll jam you up when you apply for the next mortgage, unless your day-job income is sufficient to support the multitude of traditional mortgages you otherwise might like to use for future real estate acquisitions.

The [rent * 75%] mortgage arithmetic only applies if there's no good reason that the rental income should yet appear on your tax returns, such as if you're just now buying the property or purchased it more recently than the most recent fax filing year. Once you've owned it long enough that it ought appear on tax returns, lenders go off of said tax returns, and "well Ms. Underwriter, I lied to the IRS to avoid paying taxes,  but I'm not lying to you, I promise!" isn't really a good game plan.