Filing your taxes at the end of the year is already a tricky endeavor for most people. It becomes even more difficult when you must add in unique scenarios such as rental properties to your return. Most people believe that rental properties are a great way to generate wealth, but they forget about paying tax on this income. This can have serious implications in the long run, so you should know up front how rental properties can affect your income taxes.
How do rental properties truly affect your income taxes?
Because you are bringing in more income for the year, you have to claim your rental property income on your taxes. For some people, this could bump them into a higher tax bracket and increase their tax liability related to all of their income. It is essential to keep detailed records regarding what you have earned in rent payments for these properties, as well as what you have spent to maintain them. While increased income will result in higher taxes, you can do things to lower your overall liability. Here are a couple of things to keep in mind to minimize the taxes owed.
Have you calculated your rental income or loss?
Before you can file your taxes with the rental property income, you need to make sure that you actually earned income this past year. Using Form T776, you can enter all of the information you have available about how much you earned versus how much you spent. Tally up receipts for maintenance bills, interest included in your mortgage payments, and any other expenses you had for the property during the past calendar year. Ensuring you capture all expenses for your rental property can help offset taxes owing on the rent you received.
Do you have any deductions?
As with other income sources, you do have the opportunity to deduct expenses from your rental income. Look back through your records to see if you paid for any of the following items on your property this year:
- Prepaid expenses
- Advertising
- Insurance
- Interest and bank charges
- Office expenses
- Professional fees (including management and administration fees)
- Repairs, maintenance, and landscaping fees
- Property taxes
- Travel expenses
- Utilities
Making the most of your deductions allows you to minimize your tax liability. Make sure that you are keeping excellent records of how much you pay for each service on your rental property. It could really pay off at the end of the year. Figuring out your own income taxes at the end of the year with a rental property can be difficult. That’s why many people entrust their taxes to Compass CPA, an efficient accountant in Winnipeg. Contact us today to see how we can help you prepare for tax season!