Some of the best tax advantages come with real estate investments and owning rental properties allows many deductions tied to expenses. But, since tax laws change quickly, it’s important to stay a jump ahead of what’s required.
In 2023, there are some new taxes that landlords should be aware of and some existing taxes that will still be in effect. This post is intended to help landlords and rental property owners stay compliant and avoid penalties.
If you have multiple rental properties, your income and expenses must be reported separately for each one. You can’t combine your rental income with other types of income or deduct costs unrelated to your rental activities.
Be sure to research any changes to federal income tax rules before you file your taxes for 2023. There may be new credits or deductions for landlords that could significantly reduce your tax burden.
State Income Tax
When it comes to state rental taxes on income, it’s essential for landlords to fully understand their state’s regulations. Income from rental properties must be reported, and depending on the state, there may also be additional taxes that apply, such as capital gains or sales taxes.
Texas is among nine states with no state income tax, a big draw for property investors in the Lone Star State.
Real Estate Tax
This tax is imposed by the county or city where the property is located and may vary from location to location based on the property’s assessed value. Real estate tax is typically used to fund public services such as schools and libraries.
In most cases, real estate tax is calculated annually and collected semi-annually or monthly, depending on the region. Landlords should keep track of their real estate payments, as they are generally due before the end of the year.
To calculate real estate tax, you’ll need to look up the property’s assessed value and then multiply it by the local rate. For example, if your property’s assessed value is $100,000 and your local tax rate is 1.2%, then you would owe $1,200 in real estate tax each year.
Property taxes are taxes imposed on land and the buildings on that land. As a landlord, you are responsible for paying property taxes on any rental properties you own. Be aware of your local property tax laws, as they can vary greatly depending on the area. Property taxes are typically assessed annually and are based on the value of the property in question.
In some cases, the property tax may be assessed on the land-only or the entire structure. That could include improvements such as renovations or additions. Property taxes are typically collected by the local municipality or county with funds for public schools, roads, and other local services.
In Texas, current legislation is being proposed to curb the state’s high property tax which, once concluded, will affect 2023 property taxes.
It is essential to know your property tax rate in order to factor it into your annual budget. Stay up-to-date with any changes in your local laws that may affect the amount of property tax you pay. Finally, when calculating your potential ROI for a rental property, remember to include the cost of property taxes. This will ensure an accurate estimate of how much you can make from renting a property.
Taxes can be confusing, and landlords must stay on top of the new laws that may affect them. When in doubt, it’s best to consult with a tax professional for specific guidance about the taxes that may apply to your rental property. Landlords should also be aware of all deductions available and take advantage of them when filing taxes. Preparing for the taxes that may apply to the rental property can help landlords save money, time, and stress when tax time arrives.
Cousin James Management has tax-savvy professionals on hand to help you with any tax-related questions concerning your rental property.
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