The IRS takes rental income very seriously and has a number of ways to uncover any rental income that has not been reported. Whether you’re renting out an apartment or home, it’s ultimately your responsibility to report this income on your taxes. Below are some ways that the IRS could find out about your rental income:
Through Tax Audits: The IRS routinely audits tax returns to ensure compliance with their regulations. If you’re selected for an audit, the auditor is likely to review your Schedule E, which is the form used for reporting rental income.
Real Estate Documents: The government has access to real estate records and can see if a property is being rented. They can then compare this information to tax returns to ensure that any rental income has been reported.
Public Documents: Some cities and states require landlords to register their rental properties, which can then be made available to the public. The IRS can access this information and compare it to tax returns.
Whistleblower Tips: The IRS has a whistleblower program that rewards individuals who provide information about tax evasion. This includes unreported rental income. If someone reports you, the IRS could investigate and potentially impose penalties and charges.
It’s important to remember that failing to declare rental income could have serious consequences. Not only could you face penalties for inaccurate reporting, but civil fraud penalties and criminal charges are also possible. In short, it’s always best to be honest about your rental income and to report it correctly on your taxes.