While many benefits come with investing in real estate, tax time can still be a significant source of stress for property owners. Investors that aren’t well versed in tax requirements, deductions, and processes may quickly become overwhelmed. At the same time, the Covid-19 pandemic has posed many tax changes for people worldwide, including landlords and investors. So, if you are preparing for this tax season, keep reading as we bring you through our rental property tax checklist for 2021.
Rental Property Tax Checklist for Landlords
If you aren’t a tax professional and you don’t hire one to help you file, it can be confusing and frustrating. Figuring out your finances, filling out the correct forms, and turning it all in on time can cause a ton of unnecessary stress. So, how can you come into the tax season more prepared? In this section, we’ll go over a complete rental property tax checklist of things you won’t want to forget this year.
- Track Your Expenses Throughout the Year
- Prepare the Correct Documents
- Be Aware of Changing Tax Laws
- File on Time
Track Your Expenses Throughout the Year
The first step to properly filing your taxes is tracking your expenses throughout the year. That said, it’s easy to fall behind on monitoring how much money you’ve spent, especially if you own more than one rental property.
While most of these may be deductible, a few ordinary expenses for rental properties include:
- Maintenance
- Repairs
- Utilities
- Advertising
- Office Supplies
- Property Taxes
- Sales tax
- Insurance
- Mortgage Interest
As you can imagine, landlords’ expenses throughout the year are much more than this list. So, to keep your tax paperwork as accurate as possible and maximize your deductions, track everything—even if it’s an insignificant expense.
Prepare the Correct Documents
Collecting and preparing the correct documents is vital in tax filing. Accountants and the IRS require supporting paperwork for all of your expenses. In other words, you don’t want to miss any crucial documents or accidentally submit the wrong files.
So, what documents should rental property owners prepare? Here’s a list of things to keep in mind:
- Closing statements for property purchases or refinances
- Mortgage interest statements from each lender
- Capital improvement statements
- Lawn and snow removal company bills
- Home office expenses and square footage
- Investment gains and losses
- Property taxes and insurance statements
If you’re unsure of what documentation you’ll need to file taxes, don’t be afraid to get help from a professional. In addition, accountants, financial advisors, or tax preparers near you can help you stay on track from beginning to end.
Be Aware of Changing Tax Laws
Tax laws and rules, especially within the past couple of years, are essential to pay attention to. For example, the Tax Cuts & Jobs Act, passed in 2017, still raises questions for some investors. Ultimately, this Act introduced the 20% pass-through deduction for specific business owners.
The 20% pass-through deduction allows certain business owners to deduct 20% of their qualified business income—if their taxable income is below $157,000 single or $315,000 married. That said, the Tax Cuts & Jobs Act has made a significant impact on real estate owners since most meet the requirements for this deduction.
File on Time Each Year
One of the most important things to keep in mind is filing your taxes on time. It’s easy for time to slip away, but it’s never a good idea to put off your taxes. So, if you’re unsure of the critical tax dates you should follow, here are some to mark on your calendar.
- January 14 – Taxpayers can start filing through IRS Free File partners
- January 18 – Fourth quarter estimated tax payments for 2021 are due
- January 24 – 2022 tax season begins; 2021 tax returns start getting accepted and processed
- January 28 – Earned Income Tax Credit Awareness Day
- April 18 – Tax return due date or extension request deadline for 2021
- October 17 – 2021 tax return extension due date
Above all, remember that it’s never too early to start planning for tax season. So keep these dates in mind, and make sure all your documents are filed timely and accurately.
Covid-19 Tax Relief and Applicable Deductions
As most rental investors know, the Covid-19 pandemic posed a massive inconvenience for property owners. With the National Eviction Moratorium, landlords were essentially unable to evict tenants, even if they did not pay rent. So, do landlords get any tax relief for inconveniences faced during the pandemic?
Tax Relief for Rental Property Owners
Unfortunately, the pandemic caused unprecedented changes for people all over the world. All the employee layoffs, business closures, and public health concerns have taken a toll on the economy. Similarly, rental property owners faced many challenges over the past couple of years as we’ve navigated the pandemic.
Luckily, the United States and local governments have started to approve tax relief for small business owners and landlords who were negatively impacted by the pandemic. For example, the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, allows more lenient rules for financial losses and business expense deductions.
Among the details of the CARES Act are a few different federal and state relief measures for rental property owners. Next, let’s take a look at some national relief measures.
Excess Business Losses for Rental Property
Under the Tax Cuts and Jobs Act, the IRS prohibited rental business owners from deducting excess business losses on the current year’s tax returns. However, the CARES Act temporarily eliminated this rule for tax years from 2018 through 2020.
Potential New Operating Loss Deductions
The sizeable financial impact may have caused losses that exceed your income. In this case, the CARES Act temporarily allows taxpayers to carry back any losses experienced during 2018, 2019, and 2020 for up to five years. As a result, this is great for investors because it reduces financial liability and provides financial relief.
Business Interest Expense Deduction Limits
The Tax Cuts and Jobs Act passed in 2017 allowed business owners to deduct interest expenses for the current tax year. However, the provisions in the CARES Act enable taxpayers to increase the eligible deductible expenses to 50% for tax years 2019 and 2020.
Standard Rental Property Tax Deductions
Aside from particular circumstances due to Covid-19, there are tax deductions that all real estate investors should know and take advantage of. So, if you’re unsure of what you can deduct, here’s a comprehensive list of things to keep in mind while going over your rental property tax checklist:
- Depreciation
- Mortgage Interest
- Utilities
- Maintenance
- Repairs or Renovations
- Insurance
- Advertising Costs
- Property Taxes
- Office Supplies
- Travel Expenses
- Legal or Professional Fees
- Operating Expenses
Need Help Keeping Track of Your Finances?
Keeping track of all your rental business finances can be extremely difficult on your own. Similarly, recording your income and expenses for each rental home can be time-consuming and overwhelming. That said, whether you own one property or hundreds, it’s helpful to reach out to professionals for tax help.
Bay Property Management Group provides full-leasing services, including monthly and annual financial statements, so you can easily keep track of your properties. In addition, our dedicated group of professionals can help you with all your rental property management needs, including tenant screening, eviction services, maintenance, rent collection, and more. We offer property management in Philadelphia, Baltimore, Washington DC, Northern Virginia, and surrounding counties.
If you need a reliable property management team by your side through tax season and more, reach out to Bay Property Management Group today.
