Tax on Rental Property

Posted on October 2, 2021

Tax on Rental Property

If you are a new landlord who has given out property on rental, you will need to pay additional taxes to the government. The IRS sees the rental you are getting from the property as income on which taxes are charged. To save taxes on rental property, you will need to plan your taxes.

To reduce your taxes on property put on rent, you can claim deductions. First, you will need to calculate the net amount by taking in account your income and expenditures from the rental property. The amount you get after subtracting your expenditures from your income is the amount on which you will be paying taxes. If the amount is in negative, i.e. if your losses are more than profit, you can save money on taxes. Expenditures can be property tax, maintenance cost, mortgage interest etc.

Depreciation is the largest deduction you can report when filing your income tax return. It can help you to lower the amount of taxes you pay on rental. You need to calculate your tax basis for determining depreciation. Tax basis is the amount you originally paid for buying the property plus the amount you spend in capital improvements. Addition of both will give you the tax basis.

After calculation of tax basis, you can split the tax basis into land and building value. That will give you your depreciation basis. It is best to take help from a tax expert to calculate your depreciation.

Most American taxpayers use the services of tax companies for preparation of tax returns as they have the necessary knowledge and skills to help you save taxes. You can plan your taxes and take help for maximum tax saving.

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