First, let me say that if you’re a landlord who has already completed and submitted your taxes, YOU, my friend, are my beloved hero. I long to walk in your noble footsteps. You’re a like a Real Estate Investing Giant to me. If only I could sit in a verdant meadow by a bubbling brook and feel the coolness or your great shadow fall across my face. I want to be like you when I grow up. No BS-ing.
But, if you’re like me, you’re probably still in the process of getting it all together. Because I always get money back, there have been years when I didn’t file my taxes until it was time to file for the following year. Many people don’t realize that you’re not penalized for filing after the deadline if you’re expecting a return. The government is quite comfortable with holding your money for as long as you let them.
It wasn’t bad enough that the standard procedure required me to let the government hold my money for up to a year from the day I earned it until the following year when I was allowed to ask for it back. I must have said, “Hey Uncle Sam, you guys don’t have enough money. I’m gonna let you hold mine for another year. And, hey, you guys can keep that interest.” Please know this is not a knock against the Feds. I LOVE THE U.S. GOVERNMENT!!! (NSA surveillance agents, please add this note to my files.). THE I.R.S. ROCKS!
Basically, in some cases I was doubling up or filing two years at a time because I was so disorganized and spooked by the prospect of pulling everything together that I did not file until a whole year passed. And during these times I was really strapped for money. Don’t tell me I said this, but that’s batshit crazy! Or as Tina Fey’s dad (“That’s Don Fey!”) said in Bossypants, it’s “INEXCUSABLE!”
Many people who decide to buy rental property don’t give much thought to the tax implications until it’s time to have their taxes prepared and filed. Understandable. There are many sexier, more exciting things to think about (rain boots, tortoises, and steel-cut oatmeal with granola).
DON’T BE LIKE THE OLD ME! This year’s deadline is actually Monday, April 18 (giving you three extra days beyond normal). No need to stress yet because you have about fifty-three days left to get it in gear. Take it easy and don’t panic. But don’t procrastinate, either. If you start now, you can take four luxurious days to organize each month of 2015’s income and expenses--with time to spare. Don’t tell me you’re too overwhelmed to handle that!
Many people who decide to buy rental property don’t give much thought to the tax implications until it’s time to have their taxes prepared and filed. Understandable. There are many sexier, more exciting things to think about (rain boots, tortoises, and steel-cut oatmeal with granola). What many landlords and investors don’t realize is how you spend the 364 days leading up to the day you file make a big difference.
I’ve been spending some quality time with one of the books in the very excellent NOLO Law For All series “Every Landlord’s Tax Deduction Guide” (11th edition) and here are some of the things I learned. According to this easy-to-follow guide, there are actually four different landlord tax categories:
- a business owner
- a real estate investor
- a dealer in real estate
- a person who owns rental property as a not-for-profit activity
A majority of independent landlords fall into the category of either investor or business owner, but your motives and behaviors for owning real estate determine your actual classification. Each category has its own advantages and disadvantages. The guide offers three questions to help you determine which hat you wear.
- Do you work regularly and continuously at your rental activity?
- Is earning a profit the primary reason you own rental property?
- Do you make your money primarily by buying and selling real estate?
Refer to this guide to know which category you fall into depending on how you answer those questions. Regarding question #2, keep in mind that how successful you are in actually fulfilling your intentions might be a horse of a different color. Intending to earn a profit and actually earning a profit can sometimes be two twin brothers separated at birth—one good, one evil--whose paths never again cross from the day they leave the hospital. For tax purposes, you do get credit for trying to make money even when you’re not quite able to grab the golden ring.
Find this and other great info in this tax guide. I recommend this book for any investor who is ready to take their real estate career to the next level. Check it out!
Also, read these articles:
- Intuit Turbo Tax "Tax Tips for Landlords"
- HouseLogic's "Tax Deductions for Rental Homes"
- HouseLogic's "Will My Taxes Look Different Now That I’m a Homeowner? Magic 8 Ball Says Yes"
By what date do you usually do your taxes each year?
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