Filing Taxes for Rental Properties Without a Professional

Filing your own taxes for rental properties can feel daunting, but it’s entirely manageable with the right preparation. To ensure you’re on track and compliant, here are the top things to think about or confirm before submitting your return:

1. Accurate Income Tracking

• Why It Matters: The IRS requires you to report all rental income received during the year.

• Tips:

  • Review your bank statements and digital payment platforms (like PayPal or Venmo).

  • Include all rental income, even if it’s from short-term rentals or partial-year tenants.

2. Expense Documentation

• Why It Matters: Properly categorized expenses can reduce your taxable income.

• Tips:

  • Common deductible expenses include property management fees, repairs, advertising, and utilities paid by you.

  • Keep receipts and invoices for every expense. Digital tools like QuickBooks can simplify tracking.

3. Depreciation

• Why It Matters: Depreciation is a non-cash deduction that reflects the wear and tear of your property.

• Tips:

  • Use the IRS’s Modified Accelerated Cost Recovery System (MACRS).

  • Ensure you’re depreciating the building only, not the land.

  • If this is your first year renting, establish the property’s adjusted basis.

4. Active vs. Passive Income Rules

• Why It Matters: This determines whether you can deduct losses against other income.

• Tips:

  • Confirm if you’re considered a real estate professional (750+ hours and material participation required).

  • Understand the passive activity loss limitations if you’re not a real estate professional.

5. Repairs vs. Improvements

• Why It Matters: Repairs are deductible in the year incurred, while improvements must be capitalized and depreciated.

• Tips:

  • Repairs: Fixing a leaky faucet or patching a roof.

  • Improvements: Adding a new roof or remodeling a kitchen.

  • When in doubt, review IRS guidelines on repairs vs. improvements.

6. Mileage and Travel Expenses

• Why It Matters: Travel costs associated with managing your rental property may be deductible.

• Tips:

  • Keep a log of mileage for trips to and from the property.

  • Include travel for collecting rent, property maintenance, or dealing with tenant issues.

  • Travel must be ordinary and necessary—vacationing near your rental doesn’t qualify.

7. Estimated Tax Payments

• Why It Matters: Rental income is typically subject to federal and possibly state taxes.

• Tips:

  • If you expect to owe more than $1,000 in taxes, you may need to make quarterly estimated payments.

  • Use IRS Form 1040-ES to calculate and pay these taxes.

8. State and Local Tax Considerations

• Why It Matters: Tax rules for rental properties vary by state.

• Tips:

  • Research state-specific deductions or credits.

  • Confirm if you’re subject to local property taxes or additional filing requirements.

9. Record Retention

• Why It Matters: The IRS recommends keeping tax records for at least three years, but rental property records may require longer retention.

• Tips:

  • Save closing statements, purchase records, and receipts indefinitely while you own the property.

  • Organize documents digitally for easy access.

10. Filing the Correct Tax Forms

• Why It Matters: Rental property income and expenses are reported on specific forms.

• Tips:

  • Use Schedule E (Form 1040) to report rental income and expenses.

  • For multi-property owners, ensure each property is reported separately.

Bonus Tip: Don’t Underestimate the Complexity

While it’s possible to file taxes for rental properties on your own, the process can be time-consuming and complex. Missing key deductions or filing errors can cost you money or invite IRS scrutiny. If you ever feel unsure, consulting a tax professional can provide peace of mind and maximize your return.

For questions or assistance with your rental property taxes, please reach out to our office. We’re here to help!