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DanielleCPA
DanielleCPA, Certified Public Accountant (CPA)
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Experience:  CPA experienced in tax and financial planning
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What are the tax liabilities associated with renting out my

Resolved Question:

What are the tax liabilities associated with renting out my home? How do I figure out the revenues and expenses associated with renting my home and using a property manager to do so? Thanks!
Submitted: 3 years ago.
Category: Finance
Expert:  DanielleCPA replied 3 years ago.

DMC :

Hi and welcome to Just Answer! I'm happy to help answer your Finance questions. Feel free to interject at any time if you need clarification.

DMC :

Hi, the net effect of your rental income and expenses is taxable at your ordinary income tax rate.

DMC :

If you have losses, up to 25,000 of losses can be deducted against your other income if you actively participate.

DMC :

Active participation can be achieved by owning 10% of the property, making management decisions (such as deciding who to rent to and agreeing to rental terms, approving improvements, etc)

DMC :

Any expenses that are reasonably and necessary to running your rental can be deducted -- insurance, repairs, maintenance, property managment fees, mortgage interest, property taxes, utilities, etc.

DMC :

Please let me know if you have any follow-up questions or if clarification is needed

Customer:

How do I do the math? Is there a resource that I can use to plug in revenues and expenses to figure profit and loss for rentals? Something simple? I'm not an accountant. And how that translates to actual taxable income.

DMC :

If you look at Schedule E (the form used to report rentals on your 1040) and its instructions, you should get a pretty good idea of what expenses are deductible for tax purposes. The IRS also publishes Publication 527 on Residential Rental Income. Both are excellent resources if you would like to familiarize yourself with the rules.

DMC :

There really isn't a resource out there where you can plug in revenues and expenses (I looked online to see if there were any Excel spreadsheets or online calculators aren't there).

DMC :

I suggest using an Excel spreadsheet or a good financial software like Quicken to track your revenues and expenses. Quicken makes a package specifically for rental property owners, although I cannot attest to its merits as I have not used it.

DMC :

You could also always follow the flow of Schedule E page 1. I know you're not an accountant, but it's pretty straight forward.

DMC :

If you haven't already done so, I also suggest opening up a separate checking account to devote solely to the management of your rental property. That way all income and expenses will be in one place and it will help you in tracking your income and expenses.

DMC :

Also keep in mind that outside of any of your cash expenses, you will receive a depreciation deduction on Schedule E. Depreciation is reported on Form 4562 (instructions).

DMC :

Here is a link to a fairly good depreciation calculator for the rental property itself. Residential rentals are depreciated over 27.5 years. Keep in mind that if you make improvements such as purchasing appliances, cabinets, flooring, etc. these things will need to be depreciated as well, although over shorter lives. IRS Publication 946 is a great resource on tax depreciation.

DMC :

Please let me know if you have any more questions. I'm always glad to help. If not, please hit the green accept button. Thanks!

Customer:

By a loss do you mean if expenses exceed rent?

DanielleCPA, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 727
Experience: CPA experienced in tax and financial planning
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