Tax season is upon us, and if you own rental real estate, then you may have a federal tax responsibility to report all rental income on your tax return.
The IRS defines rental income as “any payment you receive for the use or occupation of property”, and may include:
- Normal rent payments
- Advance rent payments
- Security deposits
- Tenant payment for canceling a lease
- Tenant-paid expenses
- Property or services received, instead of money, as rent
Tax time can be confusing for the first-time and seasoned landlords alike, as there are several requirements you must meet when filing taxes as a landlord. Plus, thanks to recent changes in tax law, there’s a great deal of new information to consider.
To help you make it through this tax season and get the most out of your tax return, we’ve rounded up some of the best articles featuring tax tips for landlords.
These articles cover:
- Tax Deductions: Learn what you can deduct to increase your tax savings.
- Record-keeping: Figure out which documents you need to have on-hand when filing your taxes.
- Tax Cuts and Jobs Act: Read how new tax laws have shifted the tax landscape for landlords.
- Filing Taxes: Discover how to file your taxes based on your rental business setup.
With these important tax tips for landlords in mind, you could maximize your refund and save more money.
1. Top Tax Deductions for Landlords
Don’t pay more taxes on your rental income than you need to. Landlords can claim a variety of IRS deductions on their taxes. NOLO’s article “Top Ten Tax Deductions for Landlords” goes through essential deductions you should keep in mind when filing taxes.
Let’s take a closer look at three of these deductions:
- Depreciation for Rental Real-estate Property
You may be able to recoup some of the cost of your real estate investment through depreciation. Landlords are allowed to deduct a portion of the total cost of their property over several years. Learn more about deducting long-term assets here.
Did you know that you can deduct the premiums paid for many types of insurance you’ve purchased for your rental property? From flood insurance to landlord liability insurance, landlords generally are allowed to deduct some of the costs of insurance coverage.
As a landlord, caused by both . Fortunately, the costs of rental property repairs can be deductible for the year in which they are completed.
It’s important to note that the repairs must be ordinary, necessary, and reasonable in amount. A few examples of applicable repairs include:
- Repainting your rental property
- Replacing broken windows
- Repairing gutters
These are just a few of the deductions you can claim for your rental business. Take a look at in full and note any deductions you may be missing.
2. Records Landlords Need During Tax Season
As a landlord, it’s important to keep accurate records—especially if you plan to claim any of the deductions discussed above.
Maintaining organized records can help to ease the stress of tax season. If your rental documents are organized, then you can more easily find receipts, track any deductible expenses, and prepare your tax returns. TheBalanceSMB.com gives a great rundown on landlord record-keeping.
Keep the following records organized:
- All tenant leases or rental agreements, for all of your properties
- All legal documents, including any court appearances, fines, or inspection reports required for the property
- Any type of permit you have taken out on the property
- Any records that pertain to your business entity
- Insurance policies
- Loan documents
- Tax records from the past years
- Real estate investment papers, including property titles or deeds
Landlords also need to consider their short-term records. These are documents related to income or expenses from the given tax year.
These may include:
- Rental property advertising and listing costs
- Mortgage interest
- Rental business credit cards
- Legal or professional fees for lawyers, , lawyers, etc.
- Receipts for repairs
- Receipts for rent payments
- If applicable, receipts for utility costs
There’s plenty to keep track of, but it may be worth the effort. Having these important documents on-hand could help reduce stress and streamline your tax filing process. to learn more tips on landlord record-keeping.
3. What Landlords Should Know About the Tax Cuts and Jobs Act
The recently passed Tax Cuts and Jobs Act (TCJA) implemented key changes, some of which affect rental property owners. Fortunately, many of these changes work in a landlord’s favor.
NOLO broke down some of the ways this new law affects landlords. Here are some of the most noteworthy changes:
Change #1: Individual Tax Rates Are Lower
Many residential landlords are likely required to pay income tax on their rental profits at their individual tax rates. Before the Tax Cuts and Jobs Act, tax rates were as follows:
The TCJA reduces these individual rates. As of 2018, the individual tax rates are as follows:
Key Takeaway: Landlords might benefit from lower income tax rates.
Change #2: There’s a New Pass-Through Tax Deduction
Prior to TCJA, if you received net taxable income from one of the following pass-through business entities, that net income was taxed at your personal tax rates.
- Sole Proprietorship
- LLC treated as a Sole Proprietorship
- LLC treated as a Partnership
- S Corporation
Following TCJA, you might be able to take advantage of a new pass-through tax deduction, depending on your overall income level. If your rental activity qualifies as a business for tax purposes, you may be able to deduct up to 20% of your net rental income.
Key takeaway: Landlords that qualify for this deduction could see their tax burden eased.
Change #3: Section 179 Expensing Limit Has Increased
Section 179 allows rental business owners to deduct the cost of personal property used in their rental business, such as appliances, laundry equipment, or furniture.
TCJA expanded and increased this expensing level from $500,000 to $1,000,000. This is applicable for property purchased and placed into rental service from September 27, 2017 through December 31, 2022.
Key takeaway: Before TCJA, rental property owners couldn’t deduct the cost of personal property used in residential rental units. Following 2018, this restriction is no longer in effect.
in full to learn more about how TCJA might affect your taxes as a landlord this year.
4. How to File Your Taxes Based on Ownership Status
How you file your taxes depends on how you own your rental property. The article “Filing Your Taxes When You’re a Landlord” from NOLO explains how landlords should file their taxes based on rental property ownership:
Rental Property Owned Individually
- If you own the rental property by yourself: You can file IRS Schedule E, Supplemental Income and Loss, to report your rental income and expenses.
- If you own the rental property with a co-owner: Each co-owner should report his or her share of income and deductions from the rental property on his or her own tax return, using Schedule E. If you have a partner, each owner’s share should be based on ownership interest (which you can find listed on the property deed).
Rental Property Owned through a Business Entity
If you own your property through a business entity, then you should report your income and deductions from the property using IRS Form 8825, Rental Real Estate income and Expenses of a Partnership or an S Corporation. Depending on the type of business entity, there are additional filing requirements.
to learn more how landlords should filed their taxes based on rental property ownership.
Final Notes: Making the Most of this Tax Year
Filing taxes as a landlord doesn’t have to be a headache. Armed with the information above, and with the help of a tax professional, you can make the most of your tax returns.
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