Being a landlord, tax season can feel overwhelming and incredibly intricate. There’s a multitude of tasks to handle, numerous documents to gather, and often, new adjustments to tax regulations to navigate. But it doesn’t have to induce stress. There are several steps you can take to ease the burden during this period. Understanding tax laws enables you to identify eligible deductions, avoid common errors, and even strategize for future savings.

Being well-informed can significantly impact both your peace of mind and the amount of tax you ultimately owe. Bearing this in mind, let’s explore some key aspects of filing taxes as a landlord in 2022.

Compute Your Rental Revenue

While you’re aware that taxes are due on your rental earnings, it’s important to grasp what constitutes rental income precisely. According to the IRS, rental income encompasses “any payment received for the use or occupation of property.” This encompasses rent payments, retained security deposits, and services exchanged for rent in lieu of monetary compensation. It’s imperative to report all income associated with your rental property.

• Rent Payments

Firstly, your standard monthly rent payments are considered income, whether via checks, bank transfers, or cash.

• Services Exchanged for Payment

Any services traded by the tenant to offset rent are also considered income.

• Tenant-Paid Expenses

If tenants cover certain services as part of their rent, those payments are also considered taxable income.

• Retained Security Deposits

While security deposits aren’t taxable, any portion retained must be reported as rental income. For instance, if you withhold part of the deposit due to property damage, that amount is counted as income for the year.

Once you’ve tallied your rental income, it’s time to explore potential deductions.

The IRS offers landlords various deductions, offering avenues to potentially reduce tax liabilities. Here are some common deductions:

• Mortgage Interest – Interest paid on mortgages is deductible, often a significant deduction given the cumulative interest over a year. However, if you own your property outright, this deduction doesn’t apply.
• Maintenance and Repairs – Costs incurred for repairs and maintenance throughout the year are deductible, including materials and labor.
• Improvements – While improvements enhance property value, they’re treated differently for tax purposes and must be depreciated over time.
• Utilities – If you cover utilities, such as fuel or water, they’re deductible.
• Advertising Expenses – Costs related to advertising, like newspaper ads or online listings, are deductible.
  

• Rental-Related Travel – Travel expenses for property maintenance can be deducted, either as actual costs or using the standard mileage rate.
• Legal and Professional Fees – Fees for property management, legal counsel, or accounting services are deductible.
• Insurance – Premiums for property insurance, as well as employee health insurance and workers’ compensation if applicable, are deductible.
• Taxes – Property taxes are deductible, within specified limits.
• Depreciation – Depreciation of property value is an essential deduction.
• Pass-Through Deduction – Landlords can benefit from the pass-through deduction. By understanding these deductions and their applicability, landlords can better manage their tax obligations and potentially maximize savings.