As a real estate owner, you try to make the most money you can in this troubled economy. Renting out your properties can be a great form of income, but you may not know all the deductions you qualify for to reduce the income taxes for your profits and gains. If you're new to investing, you may not even know there are two classifications of real estate investors. First, is the passive investor, and the other is a real estate professional. This classification is important for figuring out exactly what you can deduct.
As a real estate professional, your losses are not passive. This gives you fully deductible losses in all your incomes, either passive or not passive. If you're a passive investor, however, you losses are only deductible up to $25,000. The redeeming quality is that any losses that are more than that amount can be put on next year's taxes.
To qualify as a real estate professional you must spend more than half of your employed time putting into your rental business. Working on your rental business includes, but is not limited to, development of property, management, maintenance and construction. More than 750 hours must be put into your properties.
Some common income sources that can be considered taxable are rental income, tenant-paid expenses, and security deposits. First, rental revenue can only be considered taxable in the year you receive it, so advance payments must be put in with your taxable income. Next, expenses your tenants may pay for things like appliance repair can be deducted as a rental expense. Finally, security deposits are an exception in that they are not taxable at first. If your tenant causes damage, however, and you use the deposit for repairs, it can be counted as income and a deductible expense.
The Internal Revenue Service may have different ideas than you do when it comes to repairs and improvements of your rental properties. A good rule of thumb for what is deductible is that your repairs are deductible because they keep your rental property in good condition. Improvements that increase the value of your properties are not deductible. Keeping up on repairs is more of a tax-friendly practice then letting them accumulate until you need a renovation.
Some more common deductions include mortgage and travel expenses. Your mortgage payments are not deductible, but the part that goes towards your interest is. Travel expenses which includes going to collect rent and maintenance of your rental property, unless the trip's purpose was for improvements or renovations. Other expenses people may already know about are lawn care, environmental losses, and insurance are deductible.
Keeping good records is the most important part of your deductions. In the event of an audit the more receipts and proof of your payments the better. Just being prepared like you're being audited every year will allow you to take advantage of all these deductions. Using a qualified tax professional like Online Tax Pros can be the difference in your return being good or great. Let us put our expertise into your taxes to get you the most out of your return this year.
As a real estate professional, your losses are not passive. This gives you fully deductible losses in all your incomes, either passive or not passive. If you're a passive investor, however, you losses are only deductible up to $25,000. The redeeming quality is that any losses that are more than that amount can be put on next year's taxes.
To qualify as a real estate professional you must spend more than half of your employed time putting into your rental business. Working on your rental business includes, but is not limited to, development of property, management, maintenance and construction. More than 750 hours must be put into your properties.
Some common income sources that can be considered taxable are rental income, tenant-paid expenses, and security deposits. First, rental revenue can only be considered taxable in the year you receive it, so advance payments must be put in with your taxable income. Next, expenses your tenants may pay for things like appliance repair can be deducted as a rental expense. Finally, security deposits are an exception in that they are not taxable at first. If your tenant causes damage, however, and you use the deposit for repairs, it can be counted as income and a deductible expense.
The Internal Revenue Service may have different ideas than you do when it comes to repairs and improvements of your rental properties. A good rule of thumb for what is deductible is that your repairs are deductible because they keep your rental property in good condition. Improvements that increase the value of your properties are not deductible. Keeping up on repairs is more of a tax-friendly practice then letting them accumulate until you need a renovation.
Some more common deductions include mortgage and travel expenses. Your mortgage payments are not deductible, but the part that goes towards your interest is. Travel expenses which includes going to collect rent and maintenance of your rental property, unless the trip's purpose was for improvements or renovations. Other expenses people may already know about are lawn care, environmental losses, and insurance are deductible.
Keeping good records is the most important part of your deductions. In the event of an audit the more receipts and proof of your payments the better. Just being prepared like you're being audited every year will allow you to take advantage of all these deductions. Using a qualified tax professional like Online Tax Pros can be the difference in your return being good or great. Let us put our expertise into your taxes to get you the most out of your return this year.
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