Those taxpayers who have decided to rent out their property and not sell it need to pay additional taxes to the IRS. According to the IRS, the profit you make from giving your property on rent is taxable. As you are the landlord, you will need to pay taxes on the property and also on any gain from the rental. But there are ways to save taxes that new landlords must know.
To reduce your tax burden, you need to first calculate the net amount of taxes you need to pay on your rental property. For that, you will need to calculate your total profit from the rental and total expenditures on the property. Expenditures may include depreciation, maintenance costs, property tax, mortgage interest etc. The more the expenditures, the less taxes you will need to pay.
You can subtract the expenditures from the profit and get the net amount on which you will be paying tax. If the expenditures are greater than profit, you can report losses. Conversely, if the profit is greater than expenditures, you will need to pay additional taxes to the government on the net profit.
Depreciation is the largest deduction you can make on your rental property. It can bring down your net profit considerably. Before calculating depreciation, you need to find out the tax basis and depreciable basis of the property. Tax basis of your property is the amount you originally paid at the time of buying the property plus the capital improvements you have made in your property.
To report taxes on your rental, you can use IRS Form 1040. You can take the help of a professional and/or calculate and report taxes on your rental. It is, however, best to take expert help.