If you are one of the thousands of Americans that are fortunate enough to have a rental home, you must remember to include and income and expenses incurred by the property on your income tax returns. Filing your returns may get a little tricky but it is not impossible.
Having a rental property is a great tax shelter for those who need it. Here are a few tips on how to pay taxes on your rental home.
- Talk to an accountant or tax attorney who can help you prepare your taxes. If you have more than one home, have rental property or have a large gross annual income, it is advisable you seek professional help when preparing your taxes. An accountant will be able to maximize your deductions. You want to be sure your tax filing is complete and accurate. A good accountant should be able to deduct as much expenses as possible against the income generated by the property so you will have the pay the least amount of taxes possible.
- Determine if you are a passive landlord. This means your rental property is not your main source of income. However, if more than half your time is spent overseeing your real estate rentals, then the income from your rental properties would fall under a business filing. If you have an incidental home that is a rental property, you may deduct up to $25,000 of losses against any income generated by the property. This would include any damage to the property such a renovation costs due to a fire and any other money you put into the rental for improvement or related to renting it out. If you are in the real estate business, up to 100% of any losses or expenditures can be set against all income of the rentals.
- You must fill out a separate schedule or form for the rental property when preparing your tax forms. The address of the property and the rental income generate from it are some of the things you should indicate. Deductions are also itemized.
- Itemize repair expenses for the property as expenses. The cost to repaint the rental, repair the dishwasher, or fix the roof are all expenses you may write off on your tax forms. The mileage on your car and gas used to check on the property, as well as home insurance premiums are also some deductions you may consider.
- You may not deduct the entire cost of improvements done to the property. You may only declare the depreciation cost of the expenses for improvements over the lifetime of your property.
- Complete a depreciation schedule on the structure or actual physical property. This is another way of reducing the income from your rental.
- Declare any deposit paid to you by your tenant as income for the current year. Even if the deposit will be used as an advance for the last month’s rent, it will still need to be posted as part of the year’s income.
Make sure you file your taxes by the April 15 deadline. There are several ways you may offset your tax liability by using expenses incurred from your rental home. A good accountant should be able to show you how.