Rental property owners in Phoenix need to be aware of their federal tax responsibilities. It is crucial to report your rental income on tax returns and maintain a good financial record to monitor the growth of your investment. Typically, all the rent you earn is classified as rental income and is taxable. However, you can claim depreciation or amortization which can be deducted from your net payable income.
Here are a few tips on how you should prepare for filing your income tax returns on Phoenix rental.
Calculate Deductions On Your Rental Investment
When you are renting out a property, certain expenses, such as travel expenses, property tax, operating expenses, insurance, depreciation, lawn care, and repairs costs are deductible from the net rental income. Also, you can exclude the cost of certain materials, repairs or maintenance, and supplies that are required to keep your unit in good operating condition.
If you make improvements to your property, the improvements costs are adding to the overall value of the unit and hence cannot be claimed as deductible costs. You can claim these under depreciable costs.
Know The Formula For Tax Deductions
There is a standard formula to calculate what you owe in property tax. Ideally, the amount of property tax is based on two things – one is your local governmental tax rate, and the other is your property’s assessed value. You can calculate the taxable amount by multiplying the property’s assessed value by the tax rate fixed by the local government.
Assessed Value x Property Tax Rate = Property Tax
The assessed value, calculated by a property assessor, is different from the market value and is often lower than the market value. Property assessors are local government officers who determine the value of your house. They can help you calculate future taxes and estimate the value of your investment within the city. The amount of property tax you pay is based on that assessed value set by the property assessor.
Consolidate Financial Records
Once you calculate all your income and expenses, maintain it properly. Prepare your financial statements, your tax returns, collect the receipts of all costs and attach documents that will support items reported on tax returns, such as salary slips, mortgage statements, tax saving proofs and more.
There are several other ways to consolidate your financial records, such as maintaining them electronically using software, on paper, as year-end financial statements.
Consolidated financial records will help you prepare your tax returns and support your income and expenses report. You can also monitor your real estate account easily with the help of this record.
List Rental Expenses
As an owner of an investment property in Phoenix, you need to report your rental income and expenses on Schedule E, Form 1040, or 1040-SR. Make sure you list your total income, rental expenses, depreciation for each unit in the form. If you own more than three rental properties, you will need to attach the requisite forms required to list the properties. You will also need to include the address of each house in lines no. 1 and 2 of Schedule E.
Enlist The Help Of A Phoenix Property Manager
For novice investors, it can be tricky to handle their real estate accounts and file their taxes on rental investment properties. In such scenarios, hiring professional property managers can be a great help in managing your accounts. A property management company, like Keyrenter Premier, provides personalized attention to your investment accounting needs.
Hiring property managers can help you understand exactly what you need to follow in terms of filing taxes. With them, it is easy to handle every aspect of your rental income including your accounts books and stay updated about what tax information you have to maintain.
Keyrenter Premier Property Management is a trusted property management company in Arizona, Phoenix. We have a UT accounting team to manage your personal and trust accounts and we can help you in filing forms with the IRS, giving you a clear picture of how property taxes can affect your yearly income and come up with the best solution to help you stay organized.
For more information on how to manage your rental investment taxes, connect with us at Keyrenter Premier Property Management.