Under the law, rental property owners are obliged to declare their rental earnings on their tax return. As defined by the IRS, rental income is categorized as a payment made for occupying your real estate property. This can include the following:
- Paid regular rent
- Paid advance rent
- Paid security deposits
- Lease cancellation fee paid by the renter
- Expenses incurred and paid by the renter
- Received property or services in exchange for the rent
For experienced and first-time landlords alike, filing taxes can be challenging. One must take into account various factors such as financial uncertainties emanating from the pandemic, spiking rental rates and an end to eviction moratoriums.
Hence, it’s more crucial than ever to focus on saving on taxes and making the most of tax deductions. Here are some recommendations that landlords can follow to save more:
Tax Deductions Beneficial to Landlords
While taxes are required to be paid off, a landlord has several IRS deductions to claim such as:
Rental Property Depreciation
Real estate investment can be costly, but landlords can regain some of the expense by assessing the depreciation. Landlords can make deductions from the overall property cost after some years.
Insurance premiums you’re paying for your rental home are part of the deductions a landlord can claim. A considerable portion of the insurance that landlords purchase from flood insurance to landlord liability insurance can be subtracted from the tax payment.
When you own a rental home, damages are inescapable. This may be caused by tenants or landlords. The good news is the repair costs are counted as deductibles at the present year that the repairs are finished.
Bear in mind that the deductible repairs must be deemed essential and reasonable in terms of costs. Acceptable repairs cover:
- Repainting the rental home
- Replacement of broken windows
- Plumbing maintenance repairs
- Repair of electrical appliances
The pandemic has seen shifts in landlord practices. Another thing that landlords had to observe during the COVID period are the moratorium regulations.
Though main policy is returning to normal, a lot of things remain unpredictable for property owners. Among these are the rental prices, evictions, and turnovers.
A report made by the Harvard Center for Housing Studies revealed that independent landlords who manage small rental units only earned 50% of the regular rental income at the time of the pandemic.
A COVID-19 relief package was distributed in 2021 amounting to $25 billion as rental aid. This granted landlords to submit funding applications on behalf of their tenants.
Property owners can access more resources to help them in the aftermath of COVID-19 by visiting Benefits.gov. One can find webinars and news sources dedicated to the challenges confronted over the last 2 years.
Required Landlord Records for Tax Season
The more organized your records are during the tax season, the better. Having your important files on hand makes it convenient to locate your receipts, check for deductible expenses and accomplish your tax returns. The following records should be available:
- Copies of the tenant leases or rental agreements for each of your rental units
- Legal documents such as property inspection reports, records of fines and court appearances
- Permits applied for the property
- Business-related records
- Insurance policies
- Loan documents
- Filed tax records over the past years
- Real estate investment paperwork including property titles or deeds
Apart from the documents mentioned above, landlords also need to keep the short-term records. This pertains to income and expenses reports from the recent tax year. Here are some of them:
- Property marketing and advertising charges including listing fees
- Mortgage interest
- Rental business credit cards
- Legal fees including lawyers’ professional payment
- Repair receipts
- Rent payment receipts
- Utility payment receipts (if applicable)
Though it may seem like a lot of documents to keep handy, it helps to diminish stress during tax season.
Filing Taxes Based on Ownership Status
Another thing landlords need to consider when filing taxes is the rental property ownership status.
Individuals as Rental Property Owners
As an individual owner of a rental home, you need to file IRS Schedule E, Supplemental Income and Loss to declare your rent income and expenses.
Co-owners as Rental Property Owners
Owning a rental home with a co-owner requires individual reporting based on income shares and rental property deductions on each individual’s tax return. IRS Schedule E, Supplemental Income and Loss must be used.
For partners, the owner’s share should be determined by the ownership interest noted on the property deed.
Business Entity as a Rental Property Owner
Owning a rental using a business entity requires you to file the IRS Form 8825, Rental Real Estate Income and Expenses of a Partnership or an S Corporation to report your income and deductions. Contingent upon the business entity, you can expect more requirements to file.
Landlords can avoid losing money by maximizing tax deductions. That said, tax filing can be a source of stress but landlords can choose to engage the services of a reputable property management company to assist in the accurate record keeping for the Owner’s filing of tax returns. The information mentioned above can be a great help.
The team at Evolve Nevada are very experienced when it comes to performing accurate financial reporting. On top of that, we also deliver outstanding services in marketing a vacant rental unit, collecting the rent on time, screening potential renters and keeping up with the maintenance of your property.
Contact us today to learn more about our services!