As a rental property owner, you should know your federal tax responsibilities and file your income tax return on time. Landlords are required to report all taxable rental income to the IRS. According to the IRS, rental income refers to any payment you receive for the use of a rental property.
In general, rental income includes the following:
- Regular rent payments from tenants
- Advance rent payments
- Security deposits
- Charges/fees for having pets
- Charges/fees for having additional persons on the property
- Tenant fees/penalties for canceling a lease
- Expenses paid by tenants
- Property or services received in exchange for renting out the property
If you’re a new rental property owner, you may still not be familiar with how tax filing works. Even seasoned landlords sometimes still find tax filing to be a daunting task. But when working with the IRS is essential to be familiar with their processes to make sure you avoid any trouble.
Among the many benefits of owning a rental property are the tax advantages that come with it. Landlords can benefit from a variety of tax deductions that allow them to save money in the long run. But if you are not familiar with the allowable deductions from your rental income, you could miss out on many possible savings.
Knowing your allowable tax deductions can help you maximize your rental income and take advantage of the tax benefits that come with being a landlord. Also, there are other factors that can help you file your taxes smoothly and make tax season generally easier.
This is why we at Keyrenter Premier have put together this article so that every landlord knows the most important tax season tips every landlord should be aware of:
Understand Your Deductions
As a landlord and taxpayer, you should understand what expenses you can deduct so you can increase your tax savings. If you don’t know what deductions are allowed, you will end up paying more taxes than you should. This expense can add up over time, which will make a significant difference to your overall cost. The following are some deductions that you can include:
- Interest: If you bought or repaired your property through a mortgage, you could deduct the mortgage interest from your taxes. You can also deduct the interest on credit cards used to purchase eligible products and services for your rentals.
- Repairs: You can deduct the cost of necessary and reasonable repairs or renovations to your rental property. A few examples of deductible repairs are fixing leaks, fixing gutters or floors, repainting, and replacing broken windows.
- Insurance: You can also deduct the premiums you paid for different types of insurance on your rental home. A few examples of deductible insurance are coverages for fire, theft, flood, and landlord liability insurance.
- Legal and professional services: You can also deduct professional fees (as operating expenses) paid for services from property management firms, lawyers, real estate investment advisors, accountants, and other professionals related to operating your rental property.
- Depreciation for rental property: You can take back the cost of your real estate investment through depreciation. As a rental property owner, you can deduct a portion of the total cost of your rental home over the years.
Take Advantage of COVID Resources
The pandemic has been hard for both landlords and tenants. Many practices have changed due to COVID, and there are still a lot of things that landlords and tenants need to adapt to.
Fortunately, the government has provided several COVID relief packages and other pandemic-related resources that can help landlords with their tax returns. Visit Benefits.gov to access a list of resources that can help you during these trying times.
Keep Accurate Tax Records
Among the important things that a rental property owner should keep track of are their expenses. That is why as a landlord, you should keep accurate records of every expense you make related to managing and operating your rental investment. This is important so you can claim any of the deductions mentioned above.
It’s crucial to keep your transactions and proof of expenses organized. Make sure to separate your business and personal finances so you can make tax seasons a lot easier. Keeping your rental documents tidy and in a safe place can help you find receipts easily. This allows you to smoothly monitor deductible expenses and prepare your tax returns without any issues.
Some examples of the type of documents you want to keep are:
- Real estates investment papers, like property titles or deeds
- Rental agreements
- Insurance policies
- Loan documents
- Legal documents, such as inspection reports, court appearances, and fines
- Permits for your rental property
- Business records
- Tax records from the previous years
- Expense records
Hire a Property Management Company
While working with a property management company is optional, it can really be a big help to landlords, especially during tax seasons. A competent property company can help you organize your documents and maintain your important records for you. Most property management firms also employ professionals that can help with your legal, accounting, and tax concerns.
Aside from helping you with your documentation and record-keeping, a property management company can also help ease many tasks related to owning a rental property. These tasks include marketing your rental property, tenant screening, dealing with maintenance and repair requests, handling eviction processes when necessary, and so much more.
If you are looking to hire a property management company in Scottsdale, Arizona, consider Keyrenter Property Management Premier. We are among the best property management companies in Arizona, and our services have turned many rental properties into highly lucrative investments.