While owning a rental property can be a terrific way to bring in income, those extra dollars can make things complicated when it comes to preparing a tax return.
There are approximately 15 million property owners deriving income from the rental of their properties, and they need to know how to handle tax matters with relative ease.
Keep the copies of your rental receipts and bills for the whole year. The file will be a ready reference when preparing the tax returns. Create an envelope or folder for each property, and put all of your receipts in there during the year. Each property in turn must have different files for mortgage payments, real estate taxes, insurance expenses and utility bills.
Keep good rental payment records. This is necessary because you receive check and cash payments from several sources throughout the year. If you don't keep a proper record, you will have a difficult task sorting out things during tax preparation time.
Your records should identify which payments are for which properties. Your checkbooks have spaces for recording issuances and deposits for this purpose, or you can use a cash receipts book or other applicable software.
There are now available rental property software that is capable of keeping an accurate record for 10 properties and 25 separate units. These tax preparation aids will make record keeping of your rental income and expenses manageable. This can help eliminate hours at the end of the year preparing for that Schedule E. The software will keep your record up-to-date and all you have to do is fill up the form with data from a print out copy, or alternatively send the data to TurboTax or similar software.
Separate security deposits from rent payments. Security deposits are not treated as income and must be kept apart because the amounts will be returned to the lessees at the end of the lease period.
Flag expense receipts. There are expenses that would be difficult to categorize for tax purposes. Does buying a new faucet for the bathroom fall under repairs or is to be treated as capital improvement? It makes a big difference to Uncle Sam because 100 percent of repairs can be deducted this year, but capital improvements must be deducted over time. You may have a problem with the classification so it would be advisable to leave the matter to your accountant. Keep them in a separate place or flag them in your expense journal.
Keep note that you are entitled to mileage deduction. Business related driving is tax deductible so you must have a record of your mileage when driving to and from your rental properties. It can be tedious to keep track of the mileage, but it really pays off since the IRS allows you to deduct about 45 cents/mile. To make it easier, use an Internet map ser-vice such as MapQuest to look up the mileage for common trips-like between your home and each property.
There are approximately 15 million property owners deriving income from the rental of their properties, and they need to know how to handle tax matters with relative ease.
Keep the copies of your rental receipts and bills for the whole year. The file will be a ready reference when preparing the tax returns. Create an envelope or folder for each property, and put all of your receipts in there during the year. Each property in turn must have different files for mortgage payments, real estate taxes, insurance expenses and utility bills.
Keep good rental payment records. This is necessary because you receive check and cash payments from several sources throughout the year. If you don't keep a proper record, you will have a difficult task sorting out things during tax preparation time.
Your records should identify which payments are for which properties. Your checkbooks have spaces for recording issuances and deposits for this purpose, or you can use a cash receipts book or other applicable software.
There are now available rental property software that is capable of keeping an accurate record for 10 properties and 25 separate units. These tax preparation aids will make record keeping of your rental income and expenses manageable. This can help eliminate hours at the end of the year preparing for that Schedule E. The software will keep your record up-to-date and all you have to do is fill up the form with data from a print out copy, or alternatively send the data to TurboTax or similar software.
Separate security deposits from rent payments. Security deposits are not treated as income and must be kept apart because the amounts will be returned to the lessees at the end of the lease period.
Flag expense receipts. There are expenses that would be difficult to categorize for tax purposes. Does buying a new faucet for the bathroom fall under repairs or is to be treated as capital improvement? It makes a big difference to Uncle Sam because 100 percent of repairs can be deducted this year, but capital improvements must be deducted over time. You may have a problem with the classification so it would be advisable to leave the matter to your accountant. Keep them in a separate place or flag them in your expense journal.
Keep note that you are entitled to mileage deduction. Business related driving is tax deductible so you must have a record of your mileage when driving to and from your rental properties. It can be tedious to keep track of the mileage, but it really pays off since the IRS allows you to deduct about 45 cents/mile. To make it easier, use an Internet map ser-vice such as MapQuest to look up the mileage for common trips-like between your home and each property.
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