If you’re new to real estate investing and you’ve recently purchased a rental property that you plan to generate income from, don’t forget to pay your taxes on this income. The amount of taxes you pay will depend on how you use the home.
Perhaps, for example, you live in the residence most the year and rent it out for just a couple weeks each year. If it’s 14 or fewer days of rental income, you probably won’t have to pay taxes. If it’s more than 14 days, on the other hand, you’ll have to report it to the IRS.
Fortunately, you can deduct expenses related to upkeep and utilities associated with the rental property from your rental income. You’ll also be able to deduct the depreciating value of the home.
These deductions can become complicated to manage, however, if you live in the home for part of the year and rent it out the other part of the year. You’ll need to do a percentage calculation to determine what percentage of upkeep and utilities costs relate to the time you lived in the residence and the time your renters lived in the residence.
Owning a rental property and receiving the income from that property is a beautiful thing. Your rental property will generate income that is largely passive. That said, owning a rental property is also a business that needs to be managed appropriately.
It’s vital not to make any income-reporting or deduction errors when it comes to the IRS. As long as you understand the law and appropriate accounting procedure as it applies to your rental home, you and your family will have all the tools you need to wisely manage your property.
Source: Kiplinger, “Tax Planning for Owning a Second Home,” accessed April 06, 2018