Whether you own a vacation home, an apartment building, or an office space, this tax guide will help you with many of the questions you may have.
Our rental property tax guide is split into 12 sections for your convenience. So whether you already own an rental business or are just starting, jump to the section you need help with.
- Tax Forms For Reporting Rental Activity
- Best Entity For Rental Property Ownership
- Taxable Vacation Home Rental Income
- How To Deduct Startup Expenses
- Home Office Deductions
- Depreciation Expenses
- Tax Deductible Rental Loss
- Non-deductible Expenses
- Tax Credits For Landlords
- LLCs For Real Estate Investments
The following is a brief summary of each section:
1. Tax Forms For Reporting Rental Activity
The tax forms for reporting rental activity section goes over Forms 1040, Schedule E, and Form 8825. These cover the necessary forms you’ll need whether you own the property independently, jointly, or as a corporation.
Form 8825 is specifically for reporting rental real estate income and expenses. It is required for taxpayers with rental real estate activity unless you meet certain conditions to include the information directly on Schedule E instead. Form 8825 allows you to calculate your rental income, expenses, depreciation deduction, and overall profit or loss for the tax year.
2. Best Entity For Rental Property Ownership
The best entity for rental property ownership goes over the various benefits of owning under llc, corporation, individual, limited partnership, and general partnership among others. Determine what works best for you by following this comprehensive guide.
3. Selling & Reporting Your Rental
Selling and reporting your rental refers to what and how you should report your capital gains when you sell your property. This factors in depreciation as well as additional expenses you may occur.
4. Taxable Vacation Home Rental Income
The taxable vacation home rental income section details how to determine if your rental is a tax free vacation home based on your personal and rental use. We provide a useful link to a calculator to help you determine personal vs rental hours so you can have a better idea of what to expect.
5. How To Deduct Startup Expenses
The “How To Deduct Startup Expenses” section goes over how to save on expenses when you’re renting an office space, apartment home, or similar situation. This is an extensive look at the different deductions you can expense (especially for startups), including but not limited to utilities, home maintenance and care, and even factoring in landscaping.
6. Home Office Deductions
The home office deductions is a must-read if you’re want to deduct a portion of your home as an office. Many fear and claim (though it is unfounded) that this increases your risk of being audited by the IRS, however this is not the case if you follow these instructions and ensure your home office is abiding by all of them.
7. Personal Car & Public Transport Travel Expenses
Thepersonal car & public transport travel expenses section goes over how to expense your personal car (if that is what you use to manage and maintain your properties) as well as public transport rates as determined by the IRS.
8. Depreciation Expenses
The depreciation expensessection goes over just that, depreciation for a rental property.Explore this section if you need to know more about how you can improve the value of your rental properties. We evaluate what has been built, the land it sits on, fixed assets and other improvements.
9. Tax Deductible Rental Loss
The tax deductible rental losssection details the IRS passive loss rule, $25000 dollar offset, real-estate professional exemption, and the suspended passive losses deduction.
10. Non-deductible Expenses
In thenon-deductible expenses section, we go over what aspects of owning a rental property are not deductible. There are a certain amount of responsibilities in owning rental properties. As a result, some expenses are considered a part of those responsibilities and are non-deductible.
11. Tax Credits For Landlords
In the tax credits for landlordssection, we go over the rehabilitation tax credit & low-income housing credit you may be eligible for if you meet the requirements.
12. LLCs For Real Estate Investments
In theLLCs for real estate investmentssection, we go over the different entities of small businesses and how structuring yours as an LLC often yields the most tax savings. It has the maximum flexibility and helps you avoid being taxed twice.
Frequently Asked Questions
How do I avoid paying capital gains on a rental property?
There’s a few ways to go about this. One way is to convert the property from a secondary residence to your primary residence and reside in the home for at least 2 years. This changes how much you’re taxed from short-term capital gain (which is akin to income) to a long-term capital gain which has a higher upper limit.
What deductions can you take on a rental property?
There are myriad deductions you can take as a landlord, including mortgage interest, any advertising costs, insurance, maintenance and repairs, and the contractors or professional services you use for your income property.
How does the IRS know if I have rental income?
Often times they don’t or won’t know unless your tenant or someone says something. Frankly, it may not be a malicious intent, but if your property manager is reporting their income, you will suffer the penalties in an audit. Additionally, the IRS may have a public record of your ownership of the property even if you don’t have contractors or property managers on payroll. Long story short, make sure you report all your income.
