Owning a rental property can be a great long-term investment, but being a landlord involves much more than collecting rent each month.
There are repairs, maintenance, leases, tenants, recordkeeping, expenses—and, of course, taxes.
One resource every residential rental-property owner should at least know exists is IRS Publication 527: Residential Rental Property (Including Rental of Vacation Homes).
At Alpha II Realty, we provide property management services in the Las Vegas Valley, so we regularly see how important good records and communication can be when tax time arrives.
Before going any further, however, we want to make something very clear:
Alpha II Realty does not provide tax or accounting advice. This information is for general educational purposes only. Rental-property owners should consult a qualified CPA or other tax professional regarding their individual circumstances.
What Is IRS Publication 527?
Publication 527 is an IRS resource designed to help taxpayers understand many of the federal income-tax rules associated with residential rental property.
The publication discusses topics such as:
- Rental income
- Rental expenses
- Depreciation
- Repairs and improvements
- Personal use of rental property
- Converting a personal residence into a rental
- Reporting rental income and expenses
- Limitations that may apply to rental losses
For many individual property owners, rental income and expenses are ultimately reported on Schedule E of Form 1040, although individual circumstances can vary.
Rental Income Is More Than Just Monthly Rent
One interesting part of Publication 527 is its discussion of what may constitute rental income.
Most people immediately think about the monthly rent paid by a tenant, but depending on the circumstances, other payments can potentially have tax implications as well.
This is one reason why accurate property-management records matter.
A property owner should be able to provide their tax professional with reliable information about the income received and expenses associated with the property.
Rental Expenses and Recordkeeping
Rental properties generate expenses throughout the year.
Depending on the circumstances and applicable tax rules, these might involve items such as repairs, maintenance, insurance, property taxes, mortgage interest, professional services, management expenses and other costs associated with operating the rental.
However, determining whether a particular expense is deductible—and when—is a tax question.
There can also be an important distinction between a repair and an improvement. Something that appears to be a simple property expense may receive different tax treatment depending on what was done.
That’s exactly where a CPA or qualified tax professional should become involved.
Depreciation Is an Important Rental Property Concept
Publication 527 also spends considerable time discussing depreciation.
Generally, the cost of a residential rental building isn’t deducted all at once. Instead, qualifying property is depreciated over time according to IRS rules.
The tax treatment of the building, land, appliances, improvements and other components can become complicated.
Rather than trying to determine these calculations yourself, this is another area where we encourage rental-property owners to work directly with their tax professionals.
Property Management and Your CPA
As property managers, Alpha II Realty communicates with CPAs and accounting professionals on a regular basis when appropriate for the management and reporting needs of rental-property owners.
We see our role as helping maintain the property-management side of the equation.
That includes maintaining records related to rent collected and property-management activity and providing owners with information they may need to share with their CPA.
The CPA’s role is different.
Your tax professional determines how that information should be treated and reported for your particular tax situation.
That distinction is important.
We’re real estate professionals and property managers—not tax professionals. But good communication between the property owner, property manager and CPA can make managing a rental property much more organized.
Thinking About Owning a Rental Property in Las Vegas?
Publication 527 is also worth reading if you’re considering purchasing your first investment property.
Understanding that rental real estate comes with financial, recordkeeping, maintenance and tax responsibilities can help you approach investment property ownership with realistic expectations.
At Alpha II Realty, we can help with the real estate and property-management side of that decision.
We can research properties, discuss the local Las Vegas rental market, assist with buying or selling investment real estate, and discuss property-management services.
For questions involving depreciation, deductions, tax consequences, entity structure, or your individual tax return, we’ll encourage you to speak with your CPA or qualified tax professional.
A Team Approach to Rental Property Ownership
Successful rental-property ownership often involves more than one professional.
Your Realtor or Broker can help with the real estate.
Your property manager can help with the day-to-day management of the property.
And your CPA or tax professional can help you understand the tax implications.
Each has a different role.
Alpha II Realty has been serving the Las Vegas Valley since 1981, and property management continues to be one of the real estate services we provide.
If you own a rental property, are considering purchasing an investment property, or would like to learn more about our Las Vegas property-management services, we’d be happy to talk with you.
Contact Cristine Bullard, Broker, with Alpha II Realty for your real estate and property-management questions.
Tax Disclaimer: Alpha II Realty and its real estate professionals do not provide tax, accounting, or legal advice. This article is provided for general informational purposes only. Tax laws and individual circumstances vary. Always consult a qualified CPA, tax professional, or attorney regarding your specific situation.
Source: IRS Publication 527, Residential Rental Property (Including Rental of Vacation Homes).