How to Manage Taxes Being a Landlord
While reading about real estate, you may come to see a lot of content describing the perks of being a landlord. Everyone loves consistent income coming every month, and owning rental properties is one of the best ways to ensure it. There is no doubt about it. But, it may not be a piece of cake like it is claimed to be, especially for the newbie landlords. One of the biggest worries here is the situation of overwhelming taxes. In the start, the property owners find it hard to get the tenants in their properties. But property taxes are the entities which keep flowing in.
In this article, we are here to discuss about some effective way to smartly handle overwhelming taxes in order to save reasonable amount of money.
Given the fragmented investments and different streams of income, landlords can find it pretty complicated to file for taxes. Hence, IRS tax code becomes nothing less than a puzzle. And there aren’t the same rules in every state. It means that you are not going to find satisfactory answers by merely searching on internet.
Current vs. capital expenses
IRS tax structure allows you to get deductions based on your expenses. But this structure is quite complex. To make things simple, you will need to understand the difference between current and capital expenses. The reason for this need to understand is that you need to know about the deductions you can claim after one year as well as the ones which are deducted slowly in several years.
When it comes to current expenses, these are the expenses which you need to deal with on daily basis, e.g. utilities, maintenance, advertising, and other day-to-day expenses related to your property.
Capital expenses, on the other hand, are the big ones. These expenses include home improvements which tend to change the quality of lifestyle. It’s the capital expense when you spend $10,000 to remodel your bathroom.
Writing off mortgage interest
Having mortgage on rental properties prompts you to pay a hefty amount on monthly basis. In this scenario, it could be very difficult to pay taxes. Here, it would be important for you to know what you can and cannot write off when it comes to paying mortgage interests. It may help you save thousands of dollars every year.
You may find it interesting that you can actually have tax deductions if you have a home office in the property. You will also need to prove that you actually give some time to this office in order to conduct a business activity.
If you have your rental property lies at a distant location, you can claim for the deduction of travel expenses from your annual taxes. Here, it would be worth mentioning that you will need to describe the type of transportation you acquire while traveling to the property. Furthermore, you will also need to make sure that you document everything perfectly.