Paying Tax on Rent

14 Replies

I am filing with the state to form an LLC in which to purchase homes and rent them out. There are a lot of questions about sales tax. Do I pay sales tax on the rent that I will be collecting? And if I do, is it just for the total amount that I collect or just the profit? Ex. I charge $1600 a month in rent but after expenses only pocket $200. Would I pay sales tax on the $1600 total or the $200 profit? Thanks!

check with your tax/legal team but i think you can set up an LLC to function similar to a corporation or as a simple passthrough to your personal P&L. we have an LLC in Washington State (which doesn't have any income tax--until the nuts in Seattle try once again to make people who work hard "pay their fair share" so the lazy people can smoke weed in Pike Place at lunch time during the week..seriously happened once again today!!!) so we only worry about the LLC tax impact in April. typically once you write down expenses and depreciation you may actually have "lost" money on paper and depending on your personal Adj. Gross Income you can either reduce your tax bill by the "loss" or if you make too much $ (i think the limit is AGI of $150K/yr) you write down the rent income to $0 and have a loss carry forward. again, check with your tax person.

You'll report rental income on a schedule E form for tax purposes. Sales tax doesn't enter in to it. As mentioned above, a simple LLC is usually a "pass through entity " for tax purposes

Medium team zen logo vJean Bolger, 33 Zen Lane | http://www.solidrealestateadvice.com

You won't pay sales tax on any of the rent you collect. 

Originally posted by @Dan Chandler :

I am filing with the state to form an LLC in which to purchase homes and rent them out. There are a lot of questions about sales tax. Do I pay sales tax on the rent that I will be collecting? And if I do, is it just for the total amount that I collect or just the profit? Ex. I charge $1600 a month in rent but after expenses only pocket $200. Would I pay sales tax on the $1600 total or the $200 profit? Thanks!

 In Phoenix you pay sales tax on the rent collected. 

[email protected] | 402‑965‑1853

You would have to check with the city and state the property is in. Long term leases (1 year or more) do not normally have sales tax. But in some states short term leases do, like vacation rentals. Some individual city's do have a tax on rent collected, but at a lower rate than the retail sales tax. I have to laugh that Arizona calls it a "privilege" tax. What is the privilege? You have the privilege of paying more in taxes if you live here?

I do not know about how New Jersey handles it but as far as I know in California you pay taxes only on the net after expenses which include your mortgage payment and interest, insurance, maintenance etc. However that is taken as taxes on income not sales tax. 

Someone who rents you a lawn mower will pay a sales tax. 

Sales tax? That depends on your state and local laws. In Florida, landlords must collect and remit sales taxes on short term rentals under 6 months. Your laws will probably vary. Sales tax is not income for tax purposes. You are simply a tax agent for the state collecting taxes so they can get better retirement packages, more paid sick days, and more vacation days. But remember, they are here to help YOU (at least that's what they claim)

No company avatar mediumJohn Thedford, John Thedford | 239‑200‑5600 | http://www.capehomebuyers.com | FL Agent # BK3098153

Conclusion Taxpayer is not required to collect New Jersey sales and use tax and the State Occupancy Fee and Municipal Occupancy Tax to charges for occupancies since Taxpayer is not operating as a hotel. ___________________________________________________________________________

The sales tax you are referring to applies only to hotel, motel type business or even bread and breakfast businesses. This sales tax does not apply where there is a landlord/tenant relationship such as renting a house or apartment where the tenant is considered a permanent resident. 

Thanks everyone!!  Great feedback and very informative, I greatly appreciate all it!!

Originally posted by @Anthony Gayden :
Originally posted by @Dan Chandler:

I am filing with the state to form an LLC in which to purchase homes and rent them out. There are a lot of questions about sales tax. Do I pay sales tax on the rent that I will be collecting? And if I do, is it just for the total amount that I collect or just the profit? Ex. I charge $1600 a month in rent but after expenses only pocket $200. Would I pay sales tax on the $1600 total or the $200 profit? Thanks!

 In Phoenix you pay sales tax on the rent collected. 

 In Phoenix you pay (I pass it to the tenants) rent tax not the state/city sales tax. Mine is about $15 on $800 rent. The sales tax in Phoenix is 8.3%.

If you have two or more doors in the City of Phoenix, 2% of the gross rent is due to the City as tax. Call it whatever you want, but it is collected on the same pink form as sales tax and the check is made out to the same Phoenix City Treasurer. All that is different is the code assigned to the tax. The annual license fee is also less than a retail sales tax license. The rate is 2% because that is the city tax rate. The county and state (the other 6.3% of the Arizona sales tax rate) do not collect sales tax on gross rents. Every municipality is different, but this is common in AZ.

This post has been removed.

Sorry for the double post. iPhone app froze.
Originally posted by @Dan Schwartz :
If you have two or more doors in the City of Phoenix, 2% of the gross rent is due to the City as tax. Call it whatever you want, but it is collected on the same pink form as sales tax and the check is made out to the same Phoenix City Treasurer. All that is different is the code assigned to the tax. The annual license fee is also less than a retail sales tax license. The rate is 2% because that is the city tax rate. The county and state (the other 6.3% of the Arizona sales tax rate) do not collect sales tax on gross rents. Every municipality is different, but this is common in AZ.

 Thanks for the explanation. When it was first explained to me by my property manager, I was told that it was a city sales tax on rents. I have a 4 plex in Phoenix and didn't know about it until after I bought the property. I have another 4 plex in Tucson, and there is no such tax for the rent collected from those units.

[email protected] | 402‑965‑1853

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