Tax Season in Missouri for Residential Rental Property Owners
Tax Season for Residential Rentals
Tax season in Missouri can quickly become overwhelming for any landlord, but there are ways to simplify preparing your residential rental property taxes.
Here’s a quick step-by-step guide to help you file taxes for your residential rental property.
Gather your Documents:
Collect all relevant documents, including rental income records, receipts for expenses, and any other documents related to your rental property. Working with a property management company like Keyrenter St Louis West can streamline your documentation with our quick-access digital dashboard.
Bonus: Start planning for 2024! Set up a folder either on your hard drive or in the cloud for all expense receipts and other documents related to your rental property. As the paperwork comes in, save them in the designated folder.
Determine your Rental Income:
Add up all the rental income you received during the tax year. This includes rent payments, advance rent, security deposits if forfeited, and any other payments related to the property.
Alert: Consult your tax professional on how to treat non-forfeited deposits separately from rent payments. You should have a trust account set up to handle security deposits.
Calculate your Expenses:
Deduct allowable expenses related to your rental property. This includes mortgage interest, property taxes, insurance, repairs and maintenance, utilities, property management fees, and depreciation. Keep in mind that not all expenses are deductible, so it’s important to check the IRS guidelines or consult with a tax professional.
Some operating expense examples are advertising, cleaning and maintenance, mortgage payments, landlord software fees, and property taxes. Your expenses will vary depending on where your rentals are located and what you prefer to do yourself.
You can deduct the costs of certain materials, supplies, repairs, and maintenance that you make to your rental property to keep your property in good operating condition. You may not deduct the cost of improvements. A rental property is improved only if the amounts paid are for a betterment or restoration or adaptation to a new or different use.
Important Tax Deductions for Rental Properties:
1. Mortgage Interest Deduction
Mortgage interest is tax-deductible for your rental property because it’s a business expense. Sometime in January or early February, you should have received a Form 1098 from your mortgage lender showing the interest you paid for the year. When you file your tax return, in most cases you take the deduction on IRS Schedule E, which is for residential rental property owners.
2. Depreciation Deduction
Many people think of their homes as investments that become more valuable over time, but think of a rental property as more of a business asset, similar to a desk or a forklift.
Many business assets depreciate — that is, they become worth less and less every year until they reach the end of their useful lives. For rental properties, that’s typically (but not always) 27.5 years.
If you own a rental property, you can probably deduct that depreciation each year on your tax return. The math isn’t exactly simple, though. There are different ways to calculate the depreciation on a rental property, which is why it’s a good idea to get help from a qualified tax pro if you’re a landlord. There are also special rules for co-ops and condominiums. Usually, you can start depreciating a rental property when it’s ready and available to rent.
3. Property Tax Deduction
Property tax is a tax on real estate (and sometimes other property you own). The amount of tax is largely based on where the property is and how much the property is worth.
You can usually deduct the property taxes on a rental property — you just have to remember to do it. Rental owners frequently overlook the deduction. Although there’s a limit on a homeowner’s property tax deduction ($10,000, or $5,000 if married filing separately, for property taxes and either state and local income taxes or sales taxes combined), that limit doesn’t apply to business activities.
4. Deduction for Repairs
Generally speaking, the cost of things such as fixing busted garbage disposals, swapping out light bulbs or patching holes in the wall is usually tax-deductible in the year you incur the expense.
Sometimes the cost isn’t deductible. Instead, it gets capitalized and could become part of your basis (typically what you paid for the house). For example, if you buy a $300,000 rental and spend $25,000 adding a fourth bedroom, you may not get to deduct the $25,000 that year. That’s because in the eyes of the IRS it’s now as if you paid $325,000 for the house instead of $300,000. That could mean a bigger depreciation write-off.
People misclassify repair costs on their tax returns all the time. Often, they mistakenly deduct capital improvements which could be a red flag for the IRS. Here are a few big examples of things the IRS says usually have to be capitalized. You can see more in IRS Publication 527.
Additions, Landscaping and Irrigation Systems, Storm Windows, New Roof, Security System, Heating and A/C Systems, Water Heaters, Flooring, Insulation.
Prepare to File your Taxes:
It is helpful to have a system to help you document and track all your needed items. With Keyrenter St Louis West you can collect rent, security deposits, move-in fees, pet fees, etc. and expenses.
Payments, maintenance costs, and other transactions collected through Keyrenter will automatically populate to your dashboard. You can also manually enter transactions to an individual unit or building. Maintain and access your invoices, receipts, and other necessary documents with Keyrenter. Our tool allows you to track any associated rental property paperwork in case you need to provide more information to the IRS.
Format and save cash flow reports, owner 1099 summaries, total income, paid vendors, and more!
Contact Keyrenter Property Management
As a landlord, you may feel a bit overwhelmed at tax time. Keyrenter can help you not only during tax season but year round with tenant screening, property maintenance, property advertising, evictions, documentation and much more. We’ll do the heavy lifting so all you have to do is build wealth through real estate without the stress of day-to-day property management.
Click here to contact us now!
Keyrenter St Louis West is not a registered investment, legal or tax advisor. All investment/financial opinions expressed herein are from the personal research and experience of the owner of the site and are intended solely for educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.