Reporting Rental Income Rental Properties

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At GAMARRA, CPA we provide tax preparation for taxpayers who invest in rental properties in their home State, other States, or abroad. Generally, investment in real estate is rewarding and profitable. However, any profitable venture requires a thoughtful plan on action to plan for estimated taxes, expenses, income, improvements, repairs, travel expenses, management expenses, legal, accounting, and other fundamental expenses associated with overseeing and managing a property. Given our expertise, below are list of common questions asked by clients:

Question: What expenses can I write off?

Answer: Generally, all expenses associated with managing and overseeing a property result in a tax write off. However, some expenses should be capitalized and deducted over several years. For example, if you add another room to an investment property and spend $45,000.00 on the cost of the addition, this improvement will need to be written off over a period of 27.5 years. As such, talk to CPA or tax professional to provide you with guidance on how to account and organize these expenses based on your specific scenario.

Question: If my property is located in another State where I do not primarily reside, do I need to pay taxes to both my primary State and foreign State (e.g., State where you do not primarily reside)?

Answer: Generally, you will need to report the rental income and associated expenses in the foreign State. However, you are allowed a tax credit for the taxes you paid. This means that you will need to report the income and associated expenses in your primary State. To avoid double taxation, you take a credit for the taxes you paid to the foreign State.

Question: Can I deduct my travel cost and cell phone expense for managing the property?

Answer: Yes, you can deduct reasonable travel cost if you are traveling to operate or manage the property. In addition, if you use your cell phone to communicate with your tenants or management service you can deduct a reasonable amount for these expenses.