Ordinary income includes all income that is not subject to capital gains tax rates, such as wages, interest, royalties, and profit from business operations. For landlords, this often includes rental income after allowable deductions like depreciation, taxes, and maintenance are applied.
How It Applies to Florida Landlords
While rental income is usually categorized as passive income, it is generally taxed at your ordinary income tax rates unless you qualify for specific deductions or exclusions. Understanding the difference between ordinary income and capital gains is vital for long-term tax planning. While capital gains are taxed at lower preferential rates, ordinary income is subject to your standard tax bracket. Maximizing legitimate business deductions is the most effective way for Florida landlords to reduce their taxable ordinary income from rentals.
Key Takeaways
- Rental income is generally treated as ordinary income for federal tax purposes.
- Ordinary income is taxed at progressive rates rather than flat capital gains rates.
- Deducting expenses properly is essential to lowering your taxable income.