Rental Property Investor · Detroit, MI · Member since 2013 · 46 posts · 19 votes
What is the tax rate -income tax- for renting property? Is there a State and Federal income tax? I know some states don't charge income tax on rentals, but you still have to pay the Federal income tax?
There is no tax/accounting benefit to taking Title of a property in a LLC. We have no shortage of discussion on LLC's on BP, pretty much daily. FYI: many investors don't use LLC's for single family rentals, just homeowner's/landlord insurance, umbrella insurance policy, and keep their properties in good repair.
To your question, state level income tax isn't discussed much because one would have to deal with, well, every State... But, States GENERALLY follow the federal guidelines........
You need to understand that they are a few "categories" of income according to the IRS. Your salary or wage is ordinary income. Rental income is categorized as passive income. This is handled on SchE which you can download the form and the instructions if you are interested. The point is your rental income is offset/deducted by your various expenses (the categories are on SchE) that basically covers insurance, depreciation (1/27.5 of the improvements on the property, not land value), repairs, etc.
When it comes to taxation, the resulting profit/loss (many investors actually carry a loss because of the depreciation deduction, a non-cash deduction) is potentially carried onto your 1040 and taxed at your marginal rate. For losses, there are a few conditions where you could only take $3k as a loss on your 1040, or up to $25k if your modified AGI is less than $100k and by $150k this is phased out.
whatever rental losses you may have that you cannot take on your 1040 are not "gone." You carry them forward as Passive Activity Losses (PAL) which you can use to offset future profits.
That's the somewhat longer version. Consult a professional. Good luck.
Real Estate Agent · San Jose, CA · Member since 2015 · 172 posts · 66 votes
10y
As far as federal returns, the income tax you receive is taxed at the same rate as earning. Only difference is you don't pay social security or medicare taxes on it. One thing to keep in mind is that every year you get to depreciate 1/27.5th of the house value (not the land) so that helps bring down your income. If you have a loss from renting then you can carry that over to next year. As far as state taxes I think it depends on your state. Here in California it's taxed the same as regular income if you have a profit.
P.S. you also get to deduct milage, travel expense (50%), repairs, and interest.
Investor · Long Beach, CA · Member since 2015 · 201 posts · 29 votes
10y
If you, or anyone you know, are an international investor or entrepreneur, or in the past 5 years, have 1 transaction or $1 in bank accounts somewhere else than USA, don't forget to comply with IRS forms 8938, FBARR, 5471, 5472, 8833, 8921, 3520, subpart-F, just to name a few.... your accountant probably does't know about new international rules since 201r and 2011!!! If not, $5k penalties per form and per year.
Be careful everyone!!! Helping a lot of people on that!!!
For US federal income taxes, the partnerhip and the disregarded entity LLCs are tax neutral. That is, the federal income tax attributed to a residential rental property activity is the same whether the rentals are owned by you personally or by an LLC.
There is no tax/accounting benefit to taking Title of a property in a LLC. We have no shortage of discussion on LLC's on BP, pretty much daily. FYI: many investors don't use LLC's for single family rentals, just homeowner's/landlord insurance, umbrella insurance policy, and keep their properties in good repair.
To your question, state level income tax isn't discussed much because one would have to deal with, well, every State... But, States GENERALLY follow the federal guidelines........
You need to understand that they are a few "categories" of income according to the IRS. Your salary or wage is ordinary income. Rental income is categorized as passive income. This is handled on SchE which you can download the form and the instructions if you are interested. The point is your rental income is offset/deducted by your various expenses (the categories are on SchE) that basically covers insurance, depreciation (1/27.5 of the improvements on the property, not land value), repairs, etc.
When it comes to taxation, the resulting profit/loss (many investors actually carry a loss because of the depreciation deduction, a non-cash deduction) is potentially carried onto your 1040 and taxed at your marginal rate. For losses, there are a few conditions where you could only take $3k as a loss on your 1040, or up to $25k if your modified AGI is less than $100k and by $150k this is phased out.
whatever rental losses you may have that you cannot take on your 1040 are not "gone." You carry them forward as Passive Activity Losses (PAL) which you can use to offset future profits.
That's the somewhat longer version. Consult a professional. Good luck.
As a US citizen / resident, you are required to report worldwide income on your federal return. The state you live in may require the same. Rental income is one of the items that is included in world wide income.
The good thing about rentals is that it does need to be included in your net income but it may not necessarily add on to your tax burden.
Consult with a tax professional if you have any questions.
Basit Siddiqi CPA4.979 Reviews