Rental income is money you receive for the:
- Occupancy of real estate
- Use of personal property
Income can be:
- Amounts received from tenants for the monthly rent of property
- Payments by a tenant for cancellation of a lease
You must pay tax on any profit from renting out property.
For California, rental income and losses are always considered a passive activity. Visit our Instructions for Form FTB 3801, Passive Activity Loss Limitations for more information.
Rental expenses
All ordinary and necessary expenses paid or incurred during the tax year in maintaining the rental property are allowed as a deduction.
Federal return
Report your rental income and expenses on Part I, Income or Loss From Rental Real Estate Royalties on Supplemental Income and Loss, Schedule E (IRS Form 1040).
Visit IRS’s Tips on Rental Real Estate Income, Deductions and Recordkeeping for more information.
California return
Your rental income after expenses will be included in your adjusted gross income once you file your federal return.
Residents
Residents are taxed on all rental income regardless of where the property is located.
Nonresidents
Nonresidents are taxed only on rental income from property located in California.
If you're a nonresident, include your net income or loss on California Adjustments — Nonresidents or Part-Year Residents Schedule CA (540NR) (coming soon).
Visit Instructions for Schedule CA (540NR) (coming soon) for more information.
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