Tax Season Tips for Landlords

Key Takeaways

• Maximize Deductions: Landlords can significantly reduce their tax liability by claiming deductions on depreciation, mortgage interest, repairs, insurance, and more.
• Keep Thorough Records: Accurate documentation of income, expenses, and property details is essential to support deductions and avoid penalties.
• File the Right Forms: Use IRS Schedule E or Form 8825 depending on your ownership structure, and make sure to file on time to stay compliant.
• Professional Help Pays Off: Working with a property management company can simplify tax preparation and help ensure no opportunities are missed.

As a landlord, you must fulfil your obligations every tax season. The Internal Revenue Service (IRS) requires that landlords file returns on all rental income received for that year.

Filing taxes, however, can be complex and confusing, especially if you’re just getting started and not working with a property manager. What’s even worse, one wrong move can spell doom for your rental investment.

Tax returns need to be sparkling. You must ensure that you have the proper documentation, as well as file on time, among other things. Luckily for you, this blog by Reside Rentals has you covered!

Whether you’re just getting started or are a seasoned landlord. The following are 3 tax tips for you to keep in mind for a smooth filing process.

1. Claim Numerous Tax Deductions

Why would you want to pay more taxes than what the IRS requires? There are numerous tax deductions you can claim on your rental income. These alone can help save thousands of dollars on taxes if done right.

The deductions you can make as a landlord include the following:

• Property Depreciation: Every year your property depreciates in value. The depreciation usually occurs due to normal wear and tear on structures. You can deduct a portion of the total cost of the property over 27.5 years. Things you can depreciate include the cost of the building itself and any major improvements you’ve made.
• Insurance: You can deduct any insurance premiums that you have paid for covering your investment. These range from landlord liability insurance, to flood insurance, to theft insurance, and everything in between.
• Repairs: The IRS allows landlords to deduct repairs and renovations for the year in which they are done. They must be ordinary and necessary repairs. The repair cost must also be reasonable. Examples of such repairs include repairing broken-down gutters, smashed windows, or repainting tired-looking walls.
• Mortgage Interest: This is usually the single biggest deduction available to landlords. You can deduct the interest paid on financing the property or improving it.
• Property Taxes: State and local government taxes are tax-deductible as well.

Other common deductions available to landlords include utility payments (if the landlord is paying them), legal and professional fees, and property management fees.

To take maximum advantage of these tax benefits, consider working with a professional property management company.

2. Keep Accurate Records

Keeping accurate and organized tax records is key to a smooth tax season! Sure, the IRS allows landlords to deduct a wide range of expenses related to their rental property as aforementioned, however, without accurate records, you may risk missing out on valuable deductions, leading to a higher tax liability.

Also, detailed records serve as proof of all income received and expenses incurred. And the burden of proof lies with you. With insufficient documentation, you risk disallowed deductions. You may also be at risk of being penalized.

What kind of records should you be having as a landlord? The most common include the following:

• Records of all received income. These can include records of rent payments, laundry income, late fees charged, and withheld security deposits.
• Records for expenses incurred. These include receipts, invoices, and cancelled checks for all deductible expenses, such as maintenance, repairs, utilities, insurance, and property taxes.
• Records for the property’s ownership status. These include purchase agreements, records of capital improvements, and depreciation schedules.
• Records for the property’s leasing. This is usually the lease or rental agreement. You may also want to have both the move-in and move-out checklists to justify repair expenses after the tenant moves out.
• Records for mileage logs. Do you have to do any property-related travel? If so, you can deduct the cost to a certain extent.

3. File Your Taxes Properly

Once you have everything ready, the next step to ensure the filing process is a cinch is to file everything correctly. The specific form to use for the process will depend on the ownership status.

If you are the sole property owner, you’ll need to do the filing using IRS Schedule E to report all your income and expenses. If the ownership is split between you and another party, then each co-owner must do the reporting themselves, using Schedule E forms.

It’s also possible for a rental investment to be owned through a business entity. In such a case, you must use IRS Form 8825. There may also be additional filing requirements for your specific scenario. As such, make sure to do your due diligence.

Bottom Line

Being a successful landlord requires more than just owning a rental property. It requires knowledge, skill, and practical know-how, among other things. When it comes to filing taxes, you must ensure you do it accurately, carefully, and on time. Mistakes at any point during the process can be costly.

For expert help in any aspect of landlording, including during the tax season, look no further than Reside Rentals. We are a full-service property management company that has been serving Logan, UT, and the surrounding areas. Get in touch to learn more!