While the 2018 tax season may be behind us now, for most people, taxes are a “necessary evil” that need to be faced all year round. This can be particularly true for those who own rental property and have rental income and various tax-deductible expenses. And, with the new tax laws now in place, it can feel like a juggling act when determining your overall tax responsibilities.
Starting last year (2018), the way in which rental income is taxed had some changes. For instance, while income from a rental property used to be considered passive income (which in turn passed through to the property owner’s personal tax return and was taxed as ordinary income), going forward, this type of income is allowed the same preferential tax treatment as qualified business income for small business owners.
So, how exactly does that work?
With regard to qualified business income, you may be allowed to take a tax deduction of up to 20%. The actual amount of this deduction is based on your total taxable income for the year, as well as on your tax filing status.
For instance, the “taxable income thresholds” for single tax filers is $157,500 while this threshold for those who file as married and filing jointly is $315,000.
It is important to note that the amount of your total taxable income is not the same thing as your adjusted gross income (AGI), but rather the amount of your total taxable income – inclusive of your rental income and / or income from other self-employment activities – less certain deductions.
Clear as mud, right?!
If the tax-related portion of your real estate investments seems a bit overwhelming, it can be beneficial to work with a property management team that not only takes care of maintenance and tenant management, but also the financial reporting end of the business.
At Central Florida Property Management, we have a CPA on staff who will provide you with all of the financial reporting details that you need, which can free up a great deal of your time. For more information on our property management services in Orlando and the Central Florida locale, give us a call today.