If you’re a landlord, then you know that tax season typically looks a little different for you than it does for those without income properties. While filing your taxes as a landlord may at first seem overwhelming, rest assured that there are straightforward ways to reduce confusion when completing your paperwork.
The most important method of managing your taxes is to learn more about landlords’ tax responsibilities and the overall filing process. Through this knowledge, you will feel more empowered to ask questions, get support and confidently complete your tax forms.
Understanding your income
Before you file your taxes for rent payments you’ve received, it is essential that you know the ins and outs of what qualifies as rental or business income. Canadian law differentiates between housing that provides simple living quarters and businesses that provide a wide range of services.
If your responsibilities as a landlord start and end with providing tenants with a safe and lawful place to reside, then resident payments will most likely be considered as rental income. Conversely, if you are providing tenants with other offerings such as cleaning, landscaping, security or administrative support, then your income will typically be considered as stemming from a business. Knowing the proper classification of your income type is critical, because it sets the foundation for the rest of the tax paperwork you must complete.
Keeping track of your expenses
There are countless types of expenses that landlords must face each year in order to maintain their property and provide a safe and comfortable dwelling for tenants. Because these expenses can add up so quickly—and just as easily be forgotten—it is in your best interest to keep a detailed record of all expenses pertaining to your property.
Expenses can include costs of onsite repairs, gas used to go to and from your building for maintenance or business-related purposes and even legal fees used to draft contracts and lease agreements. Keeping tabs on all property-related costs will increase the ease and speed in which you file your taxes each year.
Utilizing appropriate deductions
There are many tax deductions available for landlords who receive income from a rental property. While some deductions are common and easily recognizable, such as building repairs or home office expenses, others are not so straightforward. If you are a landlord, you may also be eligible for deductions related to interest on mortgage payments and loans, business-related travel, contractor payments and insurance payments made for your rental property. Additionally, you may be eligible for a deduction if your property recently decreased in value, or if you suffered property damage from a fire or break-in. Becoming familiar with the range of deductions available to you will help you secure an appropriate tax refund.
Through these simple steps, you will be on your way to filing accurate taxes that properly reflect your income. For additional guidance on how to file taxes as a landlord, consult with Liu & Associates today.