If you are a property owner or investor, there are plenty of tax responsibilities that you need to address at least once every year. Filing tax returns is paramount or else you risk running into hefty fines, but it's also a time-consuming, complicated process. Adding an Atlanta property management company to your team can help ease the burden without causing you to miss any key deadlines.
Any rental income you earn must be reported while filing your taxes. The good news is that there are expenses that a property owner can deduct when filing tax returns. A property manager can be of great help in this regard.
There are two ways in which you can file your taxes with the IRS. The first is on a cash taxpayer basis whereby you deduct your rental expenses in the year in which you pay them. The other is the accrual method. As the name suggests, you will report your income when you earn it not when you receive it. You will also deduct your expenses when you are charged rather than when you pay them.
Before we get on the tax deductions an Atlanta property management company can help you with, you need to understand what classifies as rental income.
The IRS describes rental income as any payment received as payment for the use or occupancy of your property. It is mandatory that you report all the rental income you receive from your properties.
There are other types of rental income that you should also report on your tax return. They include advance rent which is rent received well before the period it is supposed to cover.
If a security deposit is used as a final payment of rent, then it considered being advance rent. You should also report it when you receive it. If you receive payment from a tenant who wants to cancel their lease, then it counts as rent. You should report it in the year in which you receive it. Any expenses paid by your tenants count as rental income to the IRS. The same goes for any property or services received from tenants as rent.
If your property includes a lease with an option to buy, any payments you receive from the tenant when they decide to buy will be considered rental income.
Reporting Rental Income and Expenses
Now that you understand what the IRS considers rental income, you can learn how to report it. The same goes for any expenses related to your property.
One of the ways in which an Atlanta property management company can help you is in helping you file your tax returns and report your rental income.
If you have any rental properties, including entire buildings, single rooms, or apartments, you will typically report your rental income and expenses on Form 1040 or 1040-SR, Schedule E, Part I from the IRS. You should list your total income, expenses, and depreciation for each and every property.
If you have more rental expenses than income, you may deduct the loss. However, the amount you deduct will be limited by passive activity loss rules. You should check IRS forms 8582 and 6198 for more information.
If you earn any rental income from the use of a personal dwelling property, be it your residential home or vacation property, you can limit your expenses and losses. You should review IRS Publication 527 for more information.
You are permitted to make several tax deductions as the owner of a rental property. It is in this regard that an Atlanta property management company will be the most helpful.
You can deduct expenses including property taxes, operating expenses, and depreciation among others. Deducting such expenses can really reduce your tax bill.
Any expense you incur managing, conserving, and maintaining your property can be deducted from your tax returns. These are usually referred to as ordinary and necessary expenses.
Ordinary expenses are defined as those that are common and generally accepted in running your business. Necessary expenses are those that are considered appropriate such as insurance, interest, taxes, and maintenance among others.
You can also deduct the cost of expenses used to keep your property operational. These may include the cost of supplies, materials, and maintenance fees.
If a tenant pays for expenses, you can still deduct the expenses. If the payment is made in terms of property or services, you can deduct the amount as a rental expense at fair market value. You cannot deduct the cost of improvements made to your property. However, the cost of the improvements can be recovered when deducting depreciation.
The deduction of depreciation will assist you in recovering the cost of upgrades partially or fully. However, only a fraction of those expenses will be deductible in the year in which they are incurred.
Let an Atlanta Property Management Company Help You Handle Your Taxes
An Atlanta property management company can help you to understand which expenses you can deduct from your tax returns. For one, they know the laws and have the best professionals to help them. They will also help you maintain your records which are crucial to making tax deductions. To help you choose the right team for the job, download The Guide to Finding the Best Atlanta Property Management Company today!