edwin
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05:59:45 pm on January 26, 2012 | # |
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. The file will be a ready reference when preparing the tax returns. 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. Each property in turn must have different files for mortgage payments, real estate taxes, insurance expenses and utility bills.
Keep good rental payment records. Your file should contain all information regarding the rental payments including dates, reference numbers and amounts. If you don’t keep a proper record, you will have a difficult task sorting out things during tax preparation time.
Your records should identify which payments are for which properties. You can record this with your bank deposits in your checkbook or spreadsheet or rental property software.
There are now available rental property software that is capable of keeping an accurate record for 10 properties and 25 separate units. It makes it easier to file taxes and manage rental property income and expenses. At the end of the year, you will have ready figures for Schedule E of your tax documents. 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. There are expenses that would be difficult to categorize for tax purposes. When you replace the faucet in the bathroom, is that considered a repair or a 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. You may have a problem with the classification so it would be advisable to leave the matter to your accountant. Keep them in a separate place or flag them in your expense journal.
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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