Key Takeaways
  • Maximize Deductions: Take advantage of tax deductions like mortgage interest, repairs, and depreciation to lower your tax bill.
  • Maintain Accurate Records: Keep detailed records of all income and expenses to ensure you can claim all eligible deductions.
  • Stay Informed on Tax Laws: Understand changes in tax laws to ensure compliance and avoid costly mistakes.
  • Consider Professional Help: A property management company can assist in optimizing deductions and filing accurately.

The Tax season is just around the corner. And as a landlord, now is the best time to start getting all relevant documents in order.

Under federal law, landlords have a duty to report all rental income on their tax returns. As per the Internal Revenue Service (IRS), rental income can take many forms other than the typical monthly rental income.

Rental income can include security deposit deductions, lease agreement cancellation fees, late rent fees, and any service the tenant may have rendered in exchange for living there. Essentially, you have to report all gross income received for the tax year.

You must do the filing using the proper tax form, which can vary depending on your specific situation.

In this guide, Mark Thomas Properties property management will walk you through all the important basics to know during the upcoming tax season. Keep reading to learn more!

Claim Some Deductions

You don’t have to pay more than you owe the taxman! After all, as a savvy landlord, your #1 goal is to maximize your return on investment (ROI). And this cannot be possible if your operational expenses are high.

Fortunately for you, there are a variety of deductions you can claim to minimize your tax bill.

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  • Mortgage interest. Did you use a loan to purchase the investment property? If you did, you can qualify for a deduction on the mortgage interest.
  • Property taxes. You can qualify for deductions on taxes that your local government levies. Just make sure to maintain accurate records of your property tax payments.
  • Repairs and maintenance. As per the IRS, certain repairs and property maintenance on a rental property can qualify for a tax break. Examples of such repairs include plumbing repairs, fixing broken appliances, or replacing damaged flooring. Improvements that can be depreciated include installing a new roof or adding a new room.
  • Depreciation. You may be able to recoup some of your investment cost through depreciation. Typically, residential rental property can be depreciated over 27.5 years.
  • Insurance. Deductible insurance premiums include flood insurance, fire and casualty insurance, and landlord liability insurance.

Other qualifying deductions include property management fees, legal and professional fees, rental advertising, and travel expenses.

Take Advantage of Potential Government Benefits

Certain things have never quite been the same since the pandemic era. Rental prices, tenant evictions, and turnover remain unpredictable. This is especially true for small, independent landlords.

Fortunately, you may be able to take advantage of certain government-sponsored benefits.

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Generally, you may be able to qualify if dealing with the death of a loved one, approaching retirement, or living with a disability or illness.

Keep Accurate Records

As a landlord, keeping accurate financial records is key to your success. More so, if you’re trying to take advantage of certain tax deductions.

If you have done a good job of maintaining organized records landlords need, you’ll have an easy time retrieving required documents such as rent receipts, 1099 forms, property tax records, mortgage interest statements, utility bills, and repair and maintenance receipts.

Do Proper Filing

How you file your taxes will depend on the ownership status of the rental investment. If you are the only owner, you’ll need to do the filing using Schedule E, Supplemental Income and Loss form. This is the primary tool you’ll need to report rental income and deductible expenses.

If you are a co-owner, each party will need to file their share of income and deductions separately. However, unlike a solo owner, co-owners must file their income and deductions based on their ownership shares.

If the ownership of the property is through a business entity, then the filing will depend on the type of the business entity in operation. But generally, you’ll need to do the filing using IRS Form 8825.

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Avoid Common Mistakes

Navigating the tax season as a landlord can be a complex undertaking. This is especially true if you are just starting out, operating out of state, or have a sizable portfolio of rental investments.

For such a cadre of landlords, making mistakes can be pretty easy. The following are some mistakes they can make that can prove potentially costly financially and even legally.

Failing to separate personal and rental property funds can make tracking income and deductions challenging. Inaccurate record-keeping may lead to missed deductions and IRS scrutiny, while misclassifying expenses such as confusing repairs with property improvements can impact tax filings.

Neglecting depreciation deductions means losing valuable tax benefits, and mishandling security deposits can result in both financial losses and legal issues.

Additionally, not staying informed about tax law changes can lead to costly legal or financial consequences. Luckily for you, you may be able to avoid such mistakes simply by choosing to work with a professional property manager.

Hire a Property Management Company

A property management company can significantly ease your tax season burden in multiple ways. Including:

  • Providing you with detailed financial record-keeping. They can meticulously track all your income and expenses. They usually use accounting software to generate comprehensive financial reports that can make it easier for owners to file taxes.
  • Help maximize your tax deductions. A good property manager will have years of experience under his belt. And by choosing to work with one, you could harness their experience to learn what types of expenses are deductible.

Bottom Line

Filing taxes can be a complex and confusing process, especially for newbie landlords. But it doesn’t have to be! With the help of a professional, the process can be a cinch. You may even be able to minimize your operational expenses for optimal return on investment (ROI).

Mark Thomas Properties Property Management is a full-service property management company. We can provide you with tailor-made solutions for a stress-free landlording experience. Get in touch today to learn more!