6 Tax Tips for Real Estate Sales and Rental Property Owners
Not surprisingly, the impact renting a property or selling real estate has on your tax return depends on many things. Rental properties can have a significant impact on your annual taxable income. Selling a property gets particularly complicated if you have rented your property out or it has not been your primary residence. Read on for tips on how to manage these fairly common tax situations.
1. Rental Income
Income from your rental property is taxable. You should deduct any expenses you incur for maintenance. You should report rental income in the year that you received it on a Schedule E and file it with your 1040 form. If your tenant pays you in goods instead of money, you should also report the value of the goods in the year that you received them.
2. Security Deposits
Security deposits are not rental income if you plan to return it to the tenant when they leave the property. However, if you end up keeping any portion of the security deposit because of damage to the property, then you must report that as income. Keep in mind that you can deduct the expenses related to repairing the damage, which will likely offset this income.
3. Deductible Expenses
Money that you spend on managing your rental property is tax deductible, and you should make sure to take advantage of these deductions. For example you can deduct advertising costs, cleaning expenses, homeowner dues, property taxes, maintenance fees and insurance premiums, just to name a few. Generally, you can deduct normal repairs made to your property but you are required to capitalize and depreciate the cost of improvements made to your home over several years.
4. Real Estate Sales
If you have been living in the home as your primary residence when you sell it, there are few (if any) tax implications. You embark on what is known as a straight sale, which means that you will owe no taxes if you lived in the house two of the last five years and your profit is less than $250,000 (single) or $500,000 (married).
5. Installment Sales
There are instances in which you can sell a property and get paid in installments, over time. In these cases, the IRS allows you to spread out the tax liability, rather than paying it all in one lump sum.
Another concept to keep in mind for rental sales and any business offices that you may wish to sell is depreciation. You can deduct the “use” of the property over time. You cannot do this with your home.
Making sure that you have completed your tax return correctly when you have real estate sales and/or rental properties can be complicated and time consuming. You may find it easier to hire help from a tax firm, rather than trying to manage all of the pertinent tax laws on your own.
Success Tax Relief is up to date on all current real estate tax law and can help determine your best tax strategy, based on your individual situation. Give us a call at 1-877-958-6638 for a free consultation and let us take the burden off of your shoulders. Or contact us via email for more information.