Providing Innovative Solutions To
Complex Tax Problems

Some types of rental income are not subject to federal taxes

Latest News

Most types of income are required to be reported on one’s federal tax returns and are subject to the federal income tax. Being accused of failing to report or hiding taxable income can get a person in some very hot water with the Internal Revenue Service. Such allegations could lead to a taxpayer facing investigatory and collection actions. Also, depending on the specifics of the accusations, they could even lead to a taxpayer facing criminal charges, such as tax evasion charges. So, when accused of not reporting taxable income one earned on one’s federal taxes, a taxpayer may want to promptly contact a tax lawyer for help with addressing the situation.

Now, federal tax law does contain exceptions under which certain types of income are not subject to federal taxes and federal reporting rules. For example, there is such an exception regarding certain types of income from renting out one’s residence or part of one’s residence.

Whether such rental income applies for the exception depends not on the amount of the income, but rather on how many days one rented out one’s residence or part of one’s residence during a tax year. For the purpose of the exception, the key number is 15 days. If the property was rented out for less than 15 days, the exception applies and income from the renting generally does not need to be reported on one’s federal returns and will not be federally taxed. If however, the property was rented out for 15 or more days, the exception does not apply and the rental income is generally subject to federal reporting requirements and taxation.

As a note, this exception is a federal one, so if a person qualifies for it, they still may be subject to local or state taxes in relation to the rental income, depending on the rules in their particular jurisdiction.

When a person believes that certain income they earned falls under an exception to the federal income reporting rules for taxes, such as the above-discussed residence rental exception, it can be very important for them to understand the rules of the exception and to carefully look into whether they are in fact eligible for the exception. Using an exception one doesn’t qualify for could end up being a consequence-filled mistake.

Source: The New York Times, “Some Income the I.R.S. Doesn’t Need to Know About,” Ann Carrns, June 10, 2016

Related Articles