Rental income taxes can be confusing for real estate investors but it is crucial for investors to understand the filing process, deductions, and tax rates in order to be successful. There are a few key points to each which can make the tax filing process easier.

1. Determine your tax rate. by Find out whether your rental business is classified as passive or non-passive, and determine whether the property owner is an active participant.

2. Deductions reduce the amount paid in taxes. They are expenses that can be subtracted from your total taxable income. Some common deductions property owners may be eligible for include repairs, interest, property depreciation, legal services, home office expenses, insurance, and employee/contractor expenses, to name a few.

3. Know how to report rental income. Investors will need to submit IRS Form 1040 along with Schedule E papers. Form 1040 is the basic tax form where investors report their personal information and earnings. Schedule E forms are where specific information for each property is reported, including income, expenses, and depreciation. It is a good idea to keep detailed records and receipts throughout the year to make finding all of this information easier at tax time. Make sure you double check all information submitted to the IRS against your records to prevent any errors.

Key Points:

1. Security Deposits are taxable income in the year they were received.

2. Property depreciation, loan interest, repairs and insurance are all deductible expenses for property owners.

3. Accurate detailed records will make income to expenditures easy to determine.

One of the biggest mistakes made by investors and business owners during tax season is believing misinformation.

What is the best way to learn about Rental Income Tax

When you start investing in property, your taxes necessarily get more complicated. That shouldn’t put you off from it though. The income you get from real estate, and especially rental income from your properties, can be a welcome form of passive income, but it can also complicate your taxes. While you should definitely consult with a tax professional, you can also prepare by keeping good records and following some simple procedures.

See the original at: https://www.fortunebuilders.com/rental-income-tax/

0 Votes