How To Pay No Taxes on Rental Income: 7 Tips and Tricks

For landlords wanting to know how to pay no taxes on rental income and expenses, they will be happy to know that there are several options at their disposal. In fact, the rental industry is known as one of the best industries for tax benefits. Let’s break down exactly how below.

How to Pay No Taxes on Rental Income: Main Takeaways

  • To minimize your taxes as a landlord, you should check your property tax card for errors, get a tax assessor to inspect your property, avoid property improvements until the assessment is done, and look into tax exemption laws.
  • Some more advanced tax tricks are 20% pass-through tax deductions, rental expense deductions, and property depreciation.

Table of Contents

Understanding Rental Income Taxation

Before moving forward, our Atlanta property management services will go through the most fundamental basics of tax deductions 101.

Single family home with clipboard and pen laying on the grass yard.What are Tax Deductions?

Property taxes are government-ordained fees property owners must pay each year.

The amount you pay can fluctuate depending on your property’s value and location. For example, some states and towns only count your personal property while establishing taxes. On the other hand, other places may incorporate any land you own into your taxes. Since each jurisdiction is different, you should research tax laws before buying a rental property.

Furthermore, taxes can take away a chunk of the income you make from your property. As such, you must report all earnings you make from your property, including your:

  • Rental income
  • Any security deposits you keep
  • Any goods or services you receive in exchange for a paid service you provide, like rent

Luckily, you can minimize your taxable income by subtracting your initial income from your expenses. This way, you can find your net profits, the amount for you that’s truly left at the end of the day. Plus, this can help you decide how much rent to charge.

As for the costs themselves, you can deduct taxes from any expense that comes with owning and operating a property.

All in all, taxes don’t have to be as scary as they sound. All you must do is be smart about navigating them.

Here, we’ll delve into some strategies you can use in your arsenal during tax season.

1. Obtain Your Property Tax Card

Your property tax card includes information about the size of your lot, the square footage of the home and each room, and the types of fixtures within the home.

Sometimes, your property tax evaluation can have errors or other issues. For example, it could show your property has more square footage than it really does. These little details can have domino effects on what you owe and can get deducted.

So, you may want to request your property tax card at your local assessor’s office. This way, you can rectify any errors that impact tax returns.

Property tax documents with US currency.2. Get a Tax Assessor to Inspect Your Property

One other thing you can get checked is your property value. Such property tax assessments could help you see how your property’s value—and subsequent end tax amount— stacks up compared to nearby ones.

If your property is valued lower than you thought, you might be able to wield this to your tax benefit. On the other hand, if your property is valued higher than others, you may be able to appeal that decision.

To start this process, you can go to your town hall for their instructions.

3. Avoid Property Improvements

When you update or remodel your property, that raises your property’s value, and then, your taxes.

As such, you might want to wait to make big property changes until your tax assessor’s property evaluation is complete.

4. Look Into Local Tax Exemption Laws

As obvious as it sounds, you can try lowering your property taxes by looking up local tax laws for applicable tax exemptions. You never know when you might be eligible for one. For example, if you are a senior, veteran, or have a disability, you might qualify.

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Advanced Tax Strategies

Even the costliest tax expense can be written off if you play your cards right. These can help you achieve the optimal ROI on your rental property. Look at how:

1. The 20% Pass-Through Tax Deduction

Until 2025, some business owners can gain a pass-through deduction from the Tax Cuts and Jobs Act. With a pass-through deduction, you can remove 20% of your taxes from qualifying passive business income sources.

2. Rental Expense Deductions

With rental expense deductions, you’re able to deduct any necessary rental expense as a business expense. This is great because it means you’ll get several tax write-offs simply for doing your day-to-day business maintenance. The possibilities are almost endless!

Here’s what you can count as a business expense:

  • Property Taxes
  • Start-Up Costs
  • Advertising Expenses
  • Landlord-Paid Utilities
  • Property Management Fees
  • HOA Fees
  • Employees
  • Subscriptions and Memberships
  • Travel and Parking Expenses
  • Repairs and Maintenance (unless you have repairs you can make tenants pay for)
  • Internet and Phone Plans

For a full overview, you can check out our article describing the ins and outs of these tax expense deductions.

3. Property Depreciation

With property depreciation, you will benefit from the natural fact that your property will deteriorate over time. More specifically, it allows you to get yearly tax reductions as this process progresses.

Practical Real Estate Tax Tips for Staying Organized

Miniature House on Financial Documents with Calculator

Tax term prep can be exponentially easier if you use good organizational hygiene year-round. See how you can accomplish this:

1. Keep Your Funding Types Separate

Your tax-writing time will get infinitely more tangled and complicated if you have all your personal and professional records mingled together.

So, always keep your checking and saving accounts, as well as your lines of credit, separate. This will save you from many headaches along the line.

2. Keep Your Properties Separate

On that note, you should keep each property in your portfolio separate from each other. Besides, every property has its own set of costs, rental income, and losses. All these factors are much easier to size up when they’re not combined with other accounts. As such, when each property’s finances can be evenly distinguished, taxes become much more manageable.

3. Pick a Consistent Tracking Method

It’s a personal preference to use cash or accrual methods of accounting. However, no matter what you choose, you must stay consistent. Look at the differences between these methods below to discern which works best for your business.

  • Cash Method – Record rental income and each rental expense as it comes and goes from your accounts.
  • Accrual Method – Record both income and expenses as they occur without stopping to send or accept the cash into your account.

4. Get the Support of Professionals

A landlord’s first instinct may be to do everything on their own or just use software to do the job. Whether you use an accounting team member or a full-service property management company, it’s worth the added rental expense to trust professionals with this matter.

As a matter of fact, relying on others’ expertise in these thorny areas protects your rental property enterprise from added liability.

5. Keep Detailed Records

Needless to say, nobody likes audits. Still, it can happen, and you don’t want to come in unprepared. If you keep records in an incomplete or shoddy fashion, the IRS will flag you even more. On the other hand, if you have all your ducks ready in a row, you can be ready for whatever happens. So, get an apartment ledger ready, just in case.

Rental Income and Expense Taxation Resources

Other IRS resources to look out for are:

Track Your Finances with Property Management

Knowing the ins and outs of rental property taxes is crucial for investment property owners. However, it can quickly become confusing, especially if you’re not a tax expert. Gathering the right documents, reporting the right numbers, and knowing what deductions to take advantage of can be time-consuming work.

If you work with a professional property management company like Bay Property Management Group, tracking your income and expenses can be a breeze. We’ll send you statements showing your rental income and expenses at the end of each month for each property you own. That way, you can keep all your records straight for when tax time rolls around.

In addition to helping keep track of rental income and each rental expense, our team of professionals can help with any part of the rental process, from marketing to tenant screening, maintenance, and more. And to top it all off—our services are tax deductible! So, contact BMG today if you need rental management in Atlanta.

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