It is not easy for the average rental property owner to prepare tax returns for income derived from real estate during the tax seasons.
Fortunately for the 15 million people who own rental properties in the U.S., there are ways to make tax season a little more manageable.
They should have a file of all transactions during the taxable year. You will need these records and documents when preparing an accurate tax return. Keep a separate file for every property so that you won't have to sort through the voluminous records at the end of the year. Make the same segregation for the different transactions - mortgage papers, property taxes, insurance documents, utility bills, and so on.
Your rental payments should be properly recorded. You probably get a lot of checks-and even cash-from your tenants during the year. Preparing your tax return will be more manageable if you keep an updated and orderly filing system.
Identify the source and the nature of all check receipts. You can enter the records of your deposits in your checkbooks, or a spreadsheet record, or use a software for that purpose.
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.
Mark your expenses for identification. Some expenses are hard to classify properly for the IRS. For example, what expenses are classified as repairs and maintenance, or as capital improvement? It makes sense to differentiate the repairs from capital improvement because the former is deductible for the whole amount while the latter will be deducted on an annual basis. If you have doubts about an expense, mark it accordingly for later consultation with a tax professional. In the meantime, you are to put them in a separate file and marked accordingly.
There is also the matter of mileage deduction. As a rental property owner, you incur auto and travel expenses in the conduct of you rental business. The allowable deduction is 45 cents per mile so you must be meticulous in your record keeping to fully avail of this benefit. If you have problems with your record keeping, use MapQuest or similar devices as ready instrument for your business related travels.
Fortunately for the 15 million people who own rental properties in the U.S., there are ways to make tax season a little more manageable.
They should have a file of all transactions during the taxable year. You will need these records and documents when preparing an accurate tax return. Keep a separate file for every property so that you won't have to sort through the voluminous records at the end of the year. Make the same segregation for the different transactions - mortgage papers, property taxes, insurance documents, utility bills, and so on.
Your rental payments should be properly recorded. You probably get a lot of checks-and even cash-from your tenants during the year. Preparing your tax return will be more manageable if you keep an updated and orderly filing system.
Identify the source and the nature of all check receipts. You can enter the records of your deposits in your checkbooks, or a spreadsheet record, or use a software for that purpose.
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.
Mark your expenses for identification. Some expenses are hard to classify properly for the IRS. For example, what expenses are classified as repairs and maintenance, or as capital improvement? It makes sense to differentiate the repairs from capital improvement because the former is deductible for the whole amount while the latter will be deducted on an annual basis. If you have doubts about an expense, mark it accordingly for later consultation with a tax professional. In the meantime, you are to put them in a separate file and marked accordingly.
There is also the matter of mileage deduction. As a rental property owner, you incur auto and travel expenses in the conduct of you rental business. The allowable deduction is 45 cents per mile so you must be meticulous in your record keeping to fully avail of this benefit. If you have problems with your record keeping, use MapQuest or similar devices as ready instrument for your business related travels.
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