Filing Taxes On Rental Properties
If you receive rent from someone who lives in or on your property, you’re considered a landlord and must report the rent you receive as taxable income. The rent you receive is considered income in the year you receive it even if the payment covers a time period in a different year. For example, if your tenant pays their January rent with their December rent in December 2014, both payments should be included in your 2014 taxes. With rental properties, you are required to file with federal taxes as well as state taxes. Check the state tax laws where the rental property is located. In some states, you are not required to file a return if your income falls below a certain amount. You will input your data for your rental property into the Business Income and Taxes section. If your property is located in a different state than your residence, you are also required to file a non-resident tax return.
The IRS allows you to deduct necessary expenses required to maintain and manage a property that you rent out. You are also able to deduct depreciation related to your rental property. Both of these deductibles combined will help to bolster your income on the property. You’re even allowed to deduct these expenses if your property is vacant, as long as you have the intent of leasing that vacancy out. With that being said, the expenses can only be deducted the year in which they are paid and not when they are serviced.
Here are a few deductible expenses:
• Taxes & Tax Return Preparation
• Advertising the Property
• Cleaning and cleaning supplies
• Real estate Taxes
• Mortgage interest
• Management Fees
• Travel to & from the property
ll improvements to the property are considered an asset and should not be included in your expenses, but rather input into your Assets/ Depreciation section of your tax return. Major improvements that add value to your rental property can’t be deducted all in one year’s tax return, but has to depreciate over a period of time.
ecurity deposits are not taxable since they are intended to be returned to the tenant at the end of the lease. However, if you end up keeping part (or all) of the security deposit because of damages or other factors, then that is taxable and must be included on the income that you show on your tax return for the year that the tenant vacates.