How Does Owning Rental Property Impact Your Taxes?
Choosing to become an investor in a rental property, and taking on the role of the landlord can allow you to deduct certain expenses that are incurred from owning and maintaining the property. By utilizing the services of a qualified and highly experienced accountant and tax professional who understands real estate taxes you will likely be entitled to a lot of tax brakes and savings that are catered to your individual situation.
A Note about Reporting to the IRS
There are specific forms that a landlord is required to use in when reporting both their income as well as their expenses. Because of the nature of the real estate investment business, it is important that you make sure that all of your information is filled out correctly and on the right form. This is a wonderful example of why working with an experienced and highly qualified accountant is important, especially for those with little to no experience in completing their taxes as a real estate investor. Working with a qualified accountant will provide you with the information you need to write off certain expenses that you have had to pay for throughout the year, examples of potential write-offs include, mortgage interest, repairs, insurance, and advertising.
Considerations
Taxpayers can take tax deductions for rental property by classifying and reporting it either as a business investment or a personal investment. By deciding to classify your rental property as a business investment and reporting it to the IRS accordingly, means that as a landlord you might be eligible for additional deductions for start-up and home office expenses than reporting the rental property as a personal investment. In order to qualify, as a landlord you must be able to provide documentation that you not only make a regular profit off of the rental property in question but that you also work at the business of his rental properties. Meaning that you handle and manage the tasks and expenses that go along with being a landlord. Being able to provide proper documentation for this opens doors to your being able to take advantage of various tax-brakes.
Expenses
This has been touched on briefly throughout the article, but one of the most dominant ways that becoming the owner of a rental property can impact the way in which you report your income taxes is through deducting expenses. As a rental property owner, and assuming the role of landlord you are able to deduct a number of expenses that are related to the rental property in question, and its upkeep. Potential expenses include real estate taxes, depreciation, operational expenses, supplies and tools, employee payroll, any loss that you might have incurred due to theft, utility costs, insurance payments, as well as advertising expenses, property repairs, and any interest that has been paid on the mortgage. Knowing what you can and cannot legally deduct as an expense can be an extremely helpful piece of information, and can end up helping you save a lot of money come tax season.