Q: We’re about to rent out my place and wanted to know how we would go about claiming the income for taxes? Do I have to ?
Along with Lyft and Uber driver’s, landlord’s are popping up all over the place. Short term, long term, vacation spots, single bedrooms, whole house, and yes, I have seen tents in people’s backyards being rented out to earn some extra cash or simply to utilize dead space. This is all grand until folks start thinking about the tax implications of the these endeavors or “how exactly does this all work on my taxes?”
Tax planning for 3-5 years into the future is imperative for everyone’s situation and that’s no different for people looking to convert a personal or primary residence into a rental property, or if purchasing a property outright for that purpose in general. It is key to maintain “the books” every year ( and on a monthly basis) for personal expenditures and for business expenditures. This means adding all income together, adding all expenses (separated by account) together, and subtracting expenses from income. The difference is the “taxable” portion.
To be real though, its often beneficial to report rental income and expenses because any loss may lower other taxable income, subsequently lowering tax liability.
Rental income: This could be reported on a 1099MISC or by keeping track of any payments (income) yourself.
Cleaning and Maintenance:
Mortgage Interest/Property tax : Always provide/have/use the form 1098 that provides this info.
Repairs and Supplies: (Home Depot+Lowes+Ace hardware)
Here is a template for an income statement and its concept . Download it to your computer and use the Save As feature to save the document in a safe place that you can use in the future.
FOR YOUR TAX RETURNS:
This information is reported on the Schedule E and must be added to your 1040 at the time of preparation. Tax is paid on net income (Gross income – expenses = net income). A silent expense that is often overlooked is depreciation and is added at the time of preparation so it will most likely not be on your monthly summaries but is significant.
The instructions for the schedule E are only 12 pages long, but the IRS estimates the following.
Recordkeeping ……… 3 hrs., 3 min.
Learning about the law or the form …………… 1hr., 2 min.
Preparing the form …… 1 hr., 34 min.
Copying, assembling, and sending the form to the IRS . 34 min