Federal Income Tax Filing For Residential Landlords

As a residential landlord, filing your federal income tax return each year can be a whole lot easier if you know the basic concepts of how your taxes are determined. By having a good grasp of these concepts, you'll be able to plan and make wise decisions that can lower your income tax liability. And this will positively affect your bottom line by allowing you to keep more of your hard-earned income.

It's Not How Much You Make - It's How Much You Get To Keep That Matters

The above slogan is frequently mentioned each year during federal tax filing season. As an example, just imagine earning $100,000 and owing $99,999 of it in income tax to Uncle Sam. Having only a dollar of "after-tax" income left over in this situation wouldn't be very fun. As a comparison, you'd be better off earning a measly $3 and owing $1 of it in income tax. At least you'd have $2 left over - get the gist?

Federal Income Tax Filing Basics

At its simplest level, an individual's federal income tax is determined by adding up income derived from all sources (to determine "total income"), and then subtracting all allowable tax deductions from that income to arrive at the individual's "taxable income". This is the income that is entered on line 43 of Form 1040 (U.S. Individual Income Tax Return). Federal income tax is usually determined for this income using the applicable IRS tax tables. Also, the income tax rate that is applied to an individual's taxable income is provided in the Tax Rate Schedules.

After this tax is figured, any "alternative minimum tax" that is owed is added to it. From this total, any tax credits (child-care, adoption, etc.) are subtracted, and then other additional taxes (self-employment tax, etc.) that may be owed are added. This results in an individual's "total tax".

This tax is then compared with the total amount of tax that the individual has actually paid for the tax year. If the "total tax" owed is higher, then the individual will be responsible for paying the difference to the IRS by the tax filing deadline (usually April 15th), or else late penalties will be added. If the "total tax" is lower than the amount that the individual has actually paid, then the individual will be entitled to a "refund" from the IRS that is equal to the difference.

The popular Turbotax software makes tax filing much faster and easier. It allows you to keep more of what you earn by maximizing all of your legal deductions.

Federal Income Tax Filing for Residential Landlords

At tax time, a wonderful benefit of owning residential income property is obtained through the use of " Schedule E " of Form 1040, otherwise known as "Supplemental Income and Loss". This form allows a residential landlord to reduce his or her rental income by subtracting actual expenses (repairs, utilities, etc.) and depreciation expense from that income. Both real property and personal property that are involved in the production of rental income can be depreciated over time and used to reduce taxable income and total tax owed. Schedule E is one of the most common tax forms used by residential landlords.

Please note: The above information is general in nature and should not be considered tax or accounting advice. It should not be relied upon for your own particular circumstances. For tax advice, please consult the services of a qualified accountant or tax attorney.

For more in-depth information on federal income tax filing for residential landlords, please check out The Landlord's Library book collection. It's truly the bible for helping you pave the path to your landlording success.

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