Filing a Rental Property Tax Return

Real Estate, Real Estate & Taxes
So what happens if you can’t sell you home and you’ve moved into a new one? A lot of people these days will simply rent out their old home without really thinking about the tax consequences of that. There are also a group of you that buy real estate and rent it out as an investment. I’m going to go through a couple things to take care of to file the rents on your income tax return.

So lets get started. You want to be sure to keep track of your rental income and the expenses you spent for the year. I would recommend an excel file or a book that you keep the records in just to keep everything together in one place.

You want to keep track of the rents your received, making sure you make a note of any security deposit you may have received. The security deposit isn’t taxable as it will be returned, in theory, to the tenant at the end of their lease. The expenses you would normally have include advertising the property, lawn care or snow removal, management fees or commissions paid to a realtor, mortgage interest, home owners insurance, real estate taxes and any utilities you pay, not the tenants, like water & sewer.

You can deduct maintenance and repairs but you must depreciate improvements. How to spot the difference, if the improvement increases the value of the property it must be depreciated, which means written off over several years. If its a repair, you are usually just replacing something that’s broken like a switch plate cover or new door knob.

You also get to deduct the cost of the property, less the land value, and depreciate over many years. You can look at your original settlement sheet to find the cost of the purchase, plus you’ll want to add any improvements you made to the property whilst you were living there if thats the case.

If you’re just renting your former home temporarily until you sell it, you can maintain the home’s “primary home” status and get the tax benefits as long as you do a couple things, first if you will have a profit on the sale of the home, then follow this advise. You don’t want to take losses from the operations of the property off of your tax return, you still need to report it though, there is a special area of your return where you can do this. You must have lived in the home for at least 2 of 5 years as your primary home, and you must sell it within 5 years since you’ve moved out of the house.

If the property is located within the city of Philadelphia, you’ll need to have a business privilege license and pay Business Taxes on the rental. If you need more help getting everything together to prepare your return, there is a rental worksheet available at our website you can download.

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