How to Claim Rental Property Tax Deductions the Easy Way
Renting a property can be a solid source of income. Should you choose to rent it short-term or for a longer period, it can be a real moneymaker.
As a real estate owner, you need to count on various expenses. Claiming rental property on taxes is a possibility you should explore to lower your costs.
DoNotPay can help you reduce your property taxes, pay them, or apply for property tax exemptions.
What Is Rental Income?
Rental income includes all payments that you get for the property you rent and that you need to report.
Apart from regular rentals, you need to report the following income:
| Rental Income | What Is It? |
|
Advance rent | This includes all amounts you receive before the period the rent covers. You need to include advance rent as part of your rental income in the year you receive it |
|
Security deposits | It is the final payment of rent. You must include it in your income when you receive it unless you decide to return the security deposit to your tenant at the end of the rental period |
|
Payment for lease canceling | This type of payment equals the amount your tenant needs to pay for canceling a lease. As it is also part of the rent, you need to include it in your income in the year you get it |
|
Expenses paid by the tenant | These expenses include any payments you get if the tenant covers your expenses, e.g., your water and sewage bill. You need to include these costs in your rental income and deduct them if they are deductible rental expenses |
|
Received property or services | This type of income includes anything you get as rent instead of money, and it has to be included in your rental income. To calculate it, you should use the fair market value of the delivered service or property, e.g., your tenant paints your property in exchange for a three-month rent |
|
Lease with option to buy | All payments you receive under the rental agreement where you allow your tenant to buy your rental property count as your income. That is why you need to include these payments in your rental income |
Don’t forget to report your part of the rental income if you own a portion of a rental property.
If you believe the assessed value of your property is not correct, you can file an appeal to reduce your property taxes.
If you are looking to purchase another real estate you could rent, you might want to review the list of U.S. states with low property taxes.
What Tax Deductions Can You Claim on Your Rental Property?
When you get income from your rental property, you can deduct some expenses on your tax return. These expenses can include the following:
- Property tax
- Depreciation
- Mortgage interest
- Operating expenses
- Supplies, materials, and repairs
- Ordinary and necessary expenses
- Deductible rental expenses paid by the tenant
Be careful with improvements as you might not be able to deduct some of these costs since they are recovered mostly through depreciation.
Be Careful With Your Federal Tax Responsibilities
Owning a rental property brings lots of opportunities your way, together with a few federal tax responsibilities, e.g., reporting all your rental income on your tax return. Certain tax relief can also accompany your tax liabilities.
Does owning rental property help with taxes? Yes, it does, as claiming rental property on your tax return is something you can do. You can deduct the associated costs from your rental income.
You can use one of the following methods to settle your taxes:
| Cash Method | Accrual Method |
|
|
Most taxpayers use the cash method.
Claiming Rental Property on Taxes Means Keeping Records
You need to keep track of your rental income and expenses as you must prove some elements of expenses to be able to deduct them. Keeping good records will help you:
- Prepare your tax returns
- Identify the source of receipts
- Prepare your financial statements
- Monitor and collect deductible expenses
- Support items you report on your tax returns
You will have to document everything in case of an audit. If you lack proof during the audit, you will probably face penalties and additional taxes.
DoNotPay Is Your Reliable Property Tax Advisor
can help you with different property tax-related matters, such as property tax exemptions and appeals. We use our updated database to create instructions personalized to your needs.
You should enter your personal data and property conditions, and we will use our vast database to search for the available options best suited to your specific circumstances and location.
Here is how you can get your property tax guide:
- Go to DoNotPay from your
- Opt for the Property Tax feature
- Answer a few questions about you and your property
And that’s it! You will receive a guide tailored to your specific property tax conditions, including information on how to lower your tax bills.
DoNotPay can also provide information on home warranties for your rental property and tax exemptions for your senior family members.
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