Tax Season Tips for Landlords
Key Takeaways
- Rental income includes more than just monthly rent—think security deposits, tenant-paid expenses, and even services.
- Landlords can take advantage of a variety of tax deductions, from mortgage interest to repair costs and legal fees.
- Staying organized with your records makes tax time way easier—keep everything from lease agreements to utility receipts.
- Your tax filing method (cash vs. accrual) and how you own the property determine how and where you report income.
At Limehouse Property Management, we know that as a landlord, one of your key responsibilities is staying on top of your tax obligations. Under federal law, you’re required to report all your rental income on your annual tax return.
According to the Internal Revenue Service (IRS), rental income includes any payment you receive from renting out a property—not just monthly rent. This can also include security deposits, tenant-paid expenses, or services you receive in exchange for rent.
Filing taxes, however, can feel overwhelming—especially for new landlords, those living out of state, or anyone managing a large portfolio. And unfortunately, a single misstep can lead to serious financial or legal consequences.
To ensure full compliance and maximize your returns, working with a professional is always a smart move. In the meantime, here’s everything you need to know.
Tax Seasons Tips for Landlords
Tax Deductions for Landlords
Why should you pay more to the taxman than what is required? Landlords have a smorgasbord of deductions they can apply to their tax returns. They include the following.
- Interest. You can deduct interest payments on your monthly mortgage payments. This is the biggest deduction for landlords.
- Long-distance travel. Do you have to travel over long distances to check on your rental property? If so, you may be able to deduct these costs during the next tax season. Examples of deductive expenses in this regard include airfare, car mileage, and hotels.
- Personal property taxes. Your local government can require you to pay personal property taxes on certain items that you use in and for your rental property. Examples of such items include furniture, carpeting, appliances, driveways, and fences.
- Repairs. You can also deduct the cost of repairs during your next tax filing as long as they result in the betterment of your property. The IRS splits repairs into two categories: repairs and maintenance.
- Legal Fees for Eviction. Tenant evictions can be stressful, time-consuming, and costly. Luckily for you, if it becomes necessary, you may be able to deduct the expenses depending on some factors.
Other deductions you may be able to make include insurance premiums, capital expenses, and some operational expenses.
Tax Season Records
Keeping accurate records is key for successful landlording. When you have accurate and organized records, it becomes easy to retrieve documents required for filing tax returns.
Below are some of the documents that you may need during the upcoming tax season.
- Rental agreements.
- Fines, court appearances, inspection reports, and all other legal documents.
- Property permits you have taken out.
- Business identity documents.
- Landlord insurance policy.
- Mortgage documents.
- Previous tax filings.
- Property deeds.
Additionally, you may also need to have other short-term records as well. These are typically documents related to the cost of running the property. Such as, mortgage interest, repair receipts, rent payments receipts, utility cost receipts, professional fees, and rental advertising costs.
This list is anything but exhaustive. However, it’s worth the effort to keep them organized to help streamline your tax filing process.
Income Reporting
What you declare as income will depend on your accounting method. Generally speaking, there are two methods you can choose from. That is the cash basis method and the accrual method.
With the cash basis method, you’ll need to report any income you have received in exchange for allowing resident occupation. Examples of this type of income include security deposit withholdings, lease cancellation fees, late fees, tenant-paid expenses, and normal or advance rent payments.
Please note that the security deposit will only count where you have made withholdings. For instance, used the deposit as a final rent payment or kept part of it due to a lease violation by the tenant. Otherwise, you won’t have to report it if you’re going to return it to the tenant.
The accrual method, on the other hand, can be a bit complicated. This is because you’ll need to report income when you earn it, rather than when you receive it. When it comes to expenses, you’ll need to deduct them when you incur them, rather than when paying them.
How to File Taxes
The process to follow when filing taxes as a landlord depends on the ownership status of the property. If you own the property individually, then you’ll need to report your rental income and expenses through the IRS Schedule E, Supplemental Income and Loss.
On this form, you’ll need to report all your expenses and income received for that year from all your rental investments. If you made a profit, you’ll need to add it to your other income and report it on Form 1040. Examples of other income you may generate other than rental income include job salary, and interest income.
If you own the property with another individual, each co-owner will need to file their tax returns. For property owned by a married couple, they will need to report their returns on a single Schedule E form. Where a rental property is owned by a business entity, landlords would need to report their rental income on IRS Form 8825.
When to File Taxes
Some landlords wait until the last minute to file their taxes. The IRS estimates that about 25% of U.S. taxpayers wait until the last few weeks to make their filings. But even worse is filing taxes late.
The failure-to-file penalty is usually 5 percent of the tax owed for each month your return is overdue. The penalty can also go as high as 25 percent of the bill. With that in mind, try to prepare your tax returns as soon as you can. Early tax filing can also ensure that you get any qualifying refunds faster because the IRS won’t be that backed up.
Conclusion
With these tips, filing taxes can be easy. But what can make the process even smoother is by working with a reliable and professional property management company like Limehouse Property Management.
A good property manager can help you meticulously track all income and expenses, maintain digital records, and provide detailed financial reporting. Limehouse Property Management provides Virginia Beach landlords with full-service property management services. Get in touch to get started!