Property Tax Documents: How to Declare Rental Property Income

Property Tax Documents: How to Declare Rental Property Income

Did you know that rental prices are increasing in 2022 after already increasing by 24.4% in 2021?

For property owners, this is an exciting statistic. However, being a property investor is not all fun and games.

Although you can make passive income, rental income is taxable. Not sure how to declare rental property income? Keep reading to get your property tax documents in order.

How to Declare Rental Property Income

Property owners report expenses and rental property income on Form 1040 or 1040-SR, Schedule E, Part 1 if you rent real estate buildings, apartments, or rooms.

You'll need to list depreciation, total income amount, and expenses for all properties you own. Complete multiple Schedules E if you own more than three rental properties.

What Can I Deduct?

If you have the right tax documents, you can deduct a variety of expenses. The money you spend to put your rental property in service and complete maintenance is generally deductible.

If your rental property is temporarily vacant when you file your taxes, expenses are still deductible. Deductible expenses include the following:

  • Cleaning and maintenance
  • Depreciation
  • Insurance premiums
  • Local property taxes
  • Management fees
  • Trash removal fees
  • Utilities

It's important to know that deductible expenses are not limited to the above items. There are a lot of possible deductions you'll come across.

How to Calculate Depreciation

To declare rental property income and deduct depreciation, you'll need to know how to calculate it. Depreciation is generally deducted over multiple years.

You can figure out the depreciation on your rental property with the following steps:

  1. Find out the cost of each property you own
  2. Allocate the cost to different rental property types
  3. Calculate depreciation for each owned property

Land depreciation is not allowed, but you can calculate depreciation for the following property types:

  • Residential rental real estate
  • Nonresidential rental real estate
  • Fences, shrubbery, etc.
  • Appliances and furniture

You'll either use the straight-line depreciation method or the declining balance method to calculate the depreciation for the above property types.

When Do I Owe Taxes on Rental Income?

To pay the rental income tax, you'll need to report the income on your return for the year that you receive it.

Rental payments and deposits are taxed as rental income. You have to report the value of services you receive from a tenant if you take them in exchange for rent.

You don't have to include security deposits in your income if you plan to return the deposit to your tenant at the end of the lease.

Prepare Your Property Tax Documents

It's important to prepare your property tax documents in advance so that you'll have an easier time declaring rental property income.

Use forms from the IRS to declare your income and keep documents from expenses that you can deduct during tax season. Lastly, calculate depreciation to understand the value of your assets.

We know that taxes aren't the easiest thing to understand, so let our rental property team do them for you. Contact us today to learn how we can help with property management.

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