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Rental
Property Tax Law for Calculating
Your Rental Income and Expenses Easily
Knowing
the rental property tax law is the critical first step for slashing
your rental property tax. Learn how to calculate your rental property
income and rental expenses doesn't have to be a dry and
boring process - Our
step by step guide to rental property tax law will show you how to
calculate your
taxes painlessly.
Rental
property taxes is a bit like death - Everyone hates them but
noone can run away from them. However with the right knowledge,
you can have the power to cut down on your taxes or even enjoy a few
nice tax breaks.
How
do You Calculate the Amount of Property Tax that You will Have to Pay?
As a landlord, you will have to pay taxes on any profits that you earn
from your rental property after deducting the rental expenses. This can
summed up with the simple formula below:
Rental Property Tax = (Rental
Income - Rental Expenses) x Tax Rate
When your rental expenses exceeds your rental income, this will mean
that you are actually making a loss. The silver
lining is that most governments will grant you generous tax breaks to
cushion some of your losses.
If
you want a quick and easy way to handle your real estate
taxes,
then you should get your hands on a reliable property management
software. LandlordMax
is extremely use to use and works well for most landlords - Calculating
your taxes with it is almost as simple as filling in an online form.
If
you own at least 5 rental properties or want advanced accounting
with more details, then you should take a look at the more
robust Buildium
instead.
Click
here to compare both software to see which one will be right for your
needs.
What is Counted
as Rental Income According to the Rental Property Tax Law?
As the
owner of a rental property, you are required by the rental property tax
law to report on
any rental income that you receive from your tenants.
So what is rental income in the first place? It's basically defined as
any revenue that you receive for the leasing of your rental property.
Rental income
includes:
- Rent
payments that you receive from your tenants.
- Any advance
rent that you may have collected. For example if you signed a lease
with a fixed term of 5 years and you received the first 2 years of rent
right at the beginning, you will have to include the 2nd year's rent as
advance rent.
If your
tenant still owes you any unpaid rent after the lease ends, the money
that you deduct from his security deposit to cover up for the rent is
also considered as advance rent in the eyes of the law.
- Rental
property expenses such as utility bills that are paid by your tenants
unless it is recognised as a tax deductible expense.
- Penalty
fees that you receive from your tenants when they want to end your
rental agreement prematurely.
- Any
deductions that you make from your tenant's security deposit. For
example if your tenant caused damage to your property and you took out
money from his security deposit to pay for the repair bills, it is
considered as rental income as well.
How to
Calculate Your Rental Expenses According to Rental Property Tax Law
Rental
expenses are also commonly laballed as rental property
tax deductions. The following is a brief list of the common
and important rental expenses:
* Depreciation of rental property value
*
Interest on mortgage payments
* Property repair and maintenance cost
* Cost of hiring real estate professionals
* Rental property insurance premiums
* Travelling expenses for rental activities
For
more important information on rental expenses, Click
here for our complete guide to rental property tax deductions.
Now that you
have a good understanding of your rental property tax law,
it's high time to learn how to cut down on your property taxes to the
minimum:
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