#82: How Rental Properties are Taxed

Teaching Tax Flow: The Podcast

This episode sheds light on the intricacies of tax rules that rental property investors face. From the various deductions and tax benefits real estate investors can enjoy to the different forms of property ownership and their implications on tax filings, the episode is brimming with valuable guidance.

Listeners get a rundown of how rental properties are taxed, the differences between gross and net income taxation, and the perks of owning rental properties. The conversation moves through the importance of reporting each property's details accurately and touches upon lesser-known tax-related aspects like qualified joint ventures and passive activity losses.

Key Takeaways:

• Rental property owners pay tax on net income, not gross income, allowing deductions like mortgage interest, property taxes, repairs, and depreciation.
• Each rental property must be individually reported with the correct property type, rental days, personal use days, and physical address on tax forms such as Schedule E or Form 8825.
• Single-member LLCs and qualified joint ventures report on Schedule E of personal tax returns, while multi-member LLCs, partnerships, and S corporations must file Form 8825.
• The importance of the proper classification of each property during tax filings cannot be overstated, especially as it impacts lending decisions and IRS reporting.
• Depreciation is a significant deduction for rental property owners, offering a tax shield even as property values appreciate.

Notable Quotes:

• "You want to properly report the fair market rental days, the personal use days, and the property type." - Chris Picciurro
• "Make sure you're getting the depreciation deduction and make sure that each property is not only identified as the correct type but the correct rental days." - Chris Picciurro
• "Remember, if you have a rental property, it's going to fall into three buckets." - Chris Picciurro
• "There are a couple of checkboxes that you have to be keenly aware of." - Chris Picciurro
• "Listen to the podcast on step up and basis. So if you are listening to this and you're a taxpayer and you're working in rental properties and you realize the property was inherited by someone, definitely think about the step up in basis." - Chris Picciurro

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