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Owning and managing a rental property can be a great source of extra income. However, you need to be aware of the tax implications of your rental income. There are special rules and regulations you must follow if you have a tenant-occupied property, and it’s important to keep good records of your expenses and deductions. To learn more about taxes for rental properties, read on.
Deductions
Tax deductions are a way to reduce the amount of income tax that you owe. You can claim a tax deduction for any expense that is related to earning income, and since your rental properties are a source of income, there are some rental property management tasks that may be tax deductible. Some of these tasks are described below:
- Advertising: You can deduct costs associated with advertising your rental properties, including online listings, classified ads, and signs.
- Agent Fees: You can deduct fees paid to a property management company or real estate agent.
- Insurance: You can deduct premiums for property, liability, and flood insurance.
- Interest: You can deduct mortgage interest and points on the loan used to purchase the property.
- Property Taxes: You can deduct real estate taxes paid on the property.
- Travel: You can deduct costs associated with traveling to and from the property, including mileage, tolls, and parking fees.
- Utilities: You can deduct the cost of utilities used for the property, including electricity, water, gas, and trash removal.
Further, you can deduct the cost of repairing and cleaning the property. To deduct these repairs on your taxes, you must meet certain requirements. First, the repairs must be made to improve the property in order to make it more habitable or attractive to tenants. Second, the repairs must be necessary in order to keep the property in good condition and rented out at a fair market value.
There are some repairs that are not considered tax deductible, even if they meet the two requirements listed above. These include repairs made to increase the value of the property, repairs made in order to comply with government regulations, and luxury upgrades or improvements.
You will want to invest in a good home warranty plan for your rental property to make sure you have the funds to cover any unexpected or costly repairs. You can Google “home warranty companies in Virginia” or wherever you are to find a home warranty company that can cover repairs for plumbing, electrical systems, HVAC, and appliances like refrigerators, dishwashers, and dryers.
When filing your taxes, speak with a tax professional to determine whether or not the repairs you make for your rental properties are tax deductible.
Schedule E or Schedule C
There are a few different things that you need to keep in mind when it comes to filing taxes for your rental properties. First, you want to be sure you have all the tax supplies you need, such as tax forms, tax return envelopes, additional year-end forms, completed income tax returns, year statements, and anything else that is related to your rental properties. With these essential supplies, you’ll be well prepared for tax season.
Then, you need to figure out whether you should be filing a Schedule E or a Schedule C. Schedule E is used for reporting income and expenses from a rental property that is considered a business. If you are actively involved in the management of the property, then you would report the income and expenses on this schedule.
Schedule C is used for reporting income and expenses from a rental properties that is considered a personal property. If you are not actively involved in the management of the property, then you would report the income and expenses on this schedule.
In order to determine which schedule you should be using, you need to figure out how much time you are spending on the property. If you are spending more than half of your time on the property, then it is considered a business and you would use Schedule E.
If you are spending less than half of your time on the property, then it is considered a personal property and you would use Schedule C. Keep in mind that you may need to file both schedules if you have income and expenses from both a business and personal property.
When it comes to reporting your rental income and expenses, be accurate and truthful. You could be subject to penalties if you are caught falsifying information on your tax return. So, be sure to keep track of your income and expenses throughout the year and report them accurately on your tax return.
