Showing rental income on taxes

10 Replies

What's the advantage of paying taxes on this money.
As I have been told you can't get loans based on it anyway, how does this process work for me?

@Nathan Bell you might want to re-state your question. I might be mis-understanding you.

Of course you need to declare all of your income to stay out of jail.

However, rental provide excellent tax shelters AND there are many indirect deductions that you can use as well.

here's something to think about, and they're not my words:

"Tax deductions. Property investment saves you a lot of money because of several claimable tax return deductions. This includes repairs and maintenance, interest paid on the loan, rates and taxes, agent’s fees, insurance, buildings depreciation, etc. Furthermore, owning an income property means that the interest on the mortgage payments is also tax deductible."

from "Real Estate Investing: Real Estate Investing Secrets - The Beginner's Guide to Make Money FAST (Real Estate Investment, Flipping Houses, Real Estate Wholesaling, ... Investing, Flip Real Estate, Flip a House)" by Dwayne Brown

I assume you are talking about capitalization vs repair??? Some of it can certainly be a gray area, but if your banks wants you to look profitable it's probably in your best interest to capitalize as much as possible. If not, it's obviously in your best interest to have enough repair expenses to lower your tax liability.

That being said, don't do illegal things like redoing your whole roof and calling in a repair, but some items can be classified either. Talk with your bank and CPA and find a balance that works for them.

Good luck!

thanks fellas, Any links where a beginner can get a good grasp on this? Guess I should start an LLC as well. This stuff is really not my thing.

Let me point you to 'Every Landlords Tax Deduction Guide' by Stephen Fishman. Currently in its 10th edition, this has absolutely everything you need.

If it's "not your thing", why are you involved? Sounds like a recipe for disaster to me!

If you plan on using leverage to grow your rental business, it is extremely important that you report your rental income and expenses accurately on your taxes. Banks will base their decision on financing your future deals on how your properties are cash flowing as reflected in your taxes.

The above statements don't factor in legal or ethical reasons for being accurate when reporting taxes. 

Report what you receive for rent it is Income and you are required to report it, also you are required to issue a CRP,, certificate of rent paid... each year to every tenant that pays you rent, for the amount they paid.

Expenses, keep track of all receipts and labor costs you'll need to 1099 any labor paid to vendors, and track costs of utilities, property taxes, insurance, advertising, legal fee's, accounting tax fees it's all business related, it's an expense and is a line item for deductions.

If you ever go to sell this property you will most likely be asked to show the balance sheet for the rental property and buyer will want to know he's got some kind of margin to work with.

Some rentals don't even show a profit margin for some years, yet value of property and land appreciate, while improvements are deductible , and you can show depreciation. 

So get a good education on how to do this before end of tax year and get a good tax guy to help if you need the assistance before Dec 31st. 

You can use rental income to get a mortgage.  Maybe try asking a different bank.  You would definitely have to show proof of rental income on your tax returns though.  You might need to show more than one year of rental income and the bank may only use a percentage of your rental income. 

Nathan, let your CPA handle the details of the taxes, you should be spending your time growing your empire. But all rental income must be reported. If you setup a LLC, it will generally just e a pass through entity right to your personal taxes. Your CPA can best advise you though.

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