As an investor in rental property, you need to gather your rental income as well as your deductions when you’re filing your taxes. To save money during tax time, it’s important to make sure you don’t overlook any potential deductions in your return. Many of the owners we work with have questions about what they need to include when declaring income and expenses.
You do not have to report the security deposit as income when you accept it, unless your lease agreement states that the deposit is non-refundable. That security deposit does not become income until the tenants move out and you withhold some of that money for repairs or other items like cleaning.
Collecting a 1099
We always make sure our investors receive a 1099 in January, with a complete cash flow statement. This will outline your income and expenses. All of our invoices and documentation is scanned and submitted to you as well.
Remember those deductions so you can offset the amount of rental income you earned. You can deduct your mortgage interest, depreciation, repair costs, utilities, advertising, insurance, management fees and property taxes. Talk to your CPA because there are probably even a few more deductions that you don’t want to miss. Keep good receipts and make sure they’re available if you need them. One thing you cannot deduct is the cost of improvements you make to your property to extend its life or increase its value. This might include putting on a new roof, installing a new fence or putting on a deck. These are recovered through depreciation.
Many owners ask if they have to include any advance rent collected. The answer is yes; you must include the advanced rent in the year you receive it regardless of the period stated in your lease agreement.
If you need any assistance with your taxes, please contact us at Hampton & Hampton Management and Leasing. Good luck, and happy investing.