2. As a real estate investor you depend on rental
income to pay the bills. However, every rent
check you cash is a taxable event in the eyes of
the Internal Revenue Service (IRS).
3. Net rental income is calculated
by taking the money received
from a tenant and subtracting
the deductible expenses.
Although all income generated
by commercial and residential property is
essentially taxable, the cost of operating income
properties affects the final taxable income.
4. Mortgage interest, property
taxes, insurance premiums,
property management fees,
and the cost of maintenance
and upgrades are all deductible from your
taxable income. According to the IRS, there are
types of rental income you have to report and
others you don’t.
5. For example, any rental income accumulated
within the course of the tax year is subject to
taxation, and this includes advance rent. If a
tenant gives you $10,000 in June for the first
year’s rent, the entire amount is taxable in the
year it is received.
6. The IRS does not include refundable deposits for
damages or other securities that will be
returned to the tenant at
the end of the lease period.
A reputable tax accountant
will be able to provide the
best advice tailored to your
specific situation.
7. The tax and legal information in this article is
merely a summary of our understanding and
interpretation of some of the current laws and
regulations and is not exhaustive. Investors
should consult their legal or tax counsel for
advice and information concerning their
particular circumstances.
