Business & Finance

A Guide to Paying Taxes on Rental Properties

There are many reasons people rent properties. An individual may have purchased a home and then received a work transfer, prompting them to move to a different location. They may not want to sell their house if they’d lose money on the sale. They may also plan to return to the property when they retire. Both scenarios could prompt homeowners to rent their property to tenants.

People also opt to invest in real estate by purchasing properties they rent. There are almost 20 million properties with rental units in the United States, including apartments, townhouses, and detached houses. Although rental property owners can generate revenue through rental income, they have to pay taxes on that income and property taxes. Let’s look at factors affecting your rental property income taxes and how to stay on top of your tax payments.

Deductible Expenses


The Internal Revenue Service (IRS) outlines the federal tax requirements for landlords. The IRS website lists several expenses you can deduct from your taxes, including property taxes, advertising, and maintenance costs. Familiarizing yourself with the IRS guidelines ensures you save appropriate receipts for expenses you can claim when filing your taxes.

Landlords can deduct maintenance and repair costs, enabling them to write off the cost of a home warranty plan. Investing in a home warranty for rental units is an excellent idea because it helps landlords manage expenses and avoid significant repair bills. When you sign up for a home warranty, you choose the home warranty plan suited to your needs. You choose the deductible amount you’ll pay when you need repairs. Your monthly plan costs are based on your plan selection, additional coverage options added to your plan, and the deductible amount you choose.

The best home warranty companies in GA offer multiple plan options, enabling you to invest in the right plan for your needs. A Systems Plan only covers household systems, such as your air conditioner, furnace, and ductwork. A Silver Plan only covers appliances, including your refrigerator, dishwasher, washer, and dryer.

A Gold Plan covers all the systems and appliances included in the Systems and Silver Plans. The Platinum Plan covers your property’s electrical and plumbing systems, plumbing stoppages, ductwork, water heater, furnace, air conditioner, garage door opener, garbage disposal, refrigerator, oven, range, dishwasher, washer, dryer, ice maker, and built-in microwave. You can also add a pool septic system or other systems to any home warranty plan.

Tax Folders


Whether you plan to complete your taxes yourself or hire an accountant, you’ll need to keep track of deductible expenses incurred throughout the year. Purchase tax folders or tax envelopes you can use to store your receipts. You can print the property name on custom tax folders, enabling you to separate business expenses for properties you rent from personal tax documents. Using labeled folders also makes it easy to find the correct folder when you need it, saving you time and money.

You can also use a tax folder or tax envelope to keep track of rental income. This is crucial because you may have months when your property’s vacant between tenants. Using separate folders or envelopes also helps you separate revenue and expenses for different properties, which is crucial if you own multiple properties you rent.

Accounting Costs


Accountants are professionals with a degree in accounting, mathematics, or a similar discipline. Certified Professional Accountants (CPAs) must pass the American Institute of Certified Public Accountants (AICPA) to become a licensed CPA. These highly trained individuals are familiar with tax laws and understand how to maximize business deductions so individuals and business owners can reduce their tax burden. You can also claim these costs when filing your taxes, reducing the amount of taxes owed on your rental income.

Landlords must pay taxes on rental income. Understanding the expenses that can be deducted and tracking income and expenses throughout the year can simplify the process of filing your taxes.