When tax time rolls around, you’ll need to know how to report what you earned and lost on your Roseville rental property. Hopefully, you’ll have some great resources available to you, such as an experienced CPA or a good tax accountant. If you work with a Roseville property management company, the process will likely be as easy as receiving a copy of your 1099 from them and handing it over to your tax professional.
If you’re working on your own and you’re not sure how to proceed, we have an overview of what you’ll need to do when you report your rental income on federal and state returns.
Federal Rental Property Tax Reporting
The way you report your rental income and expenses on your federal return will depend on how you’ve structured your rental property business. If you’re a sole proprietor and you own the property alone, you’ll file the IRS Schedule E, Supplemental Income and Loss, with your general return. If you own the property with someone else, you’ll each fill out and file a Schedule E. Your share is based on your ownership interest, whether it’s 50/50 or something else.
Sometimes, owners will put their Roseville rental properties into an LLC or create a business to hold ownership of the assets. In that case, your partnership, limited partnership, LLC, or S corporation will be required to file the IRS Form 8825, Rental Real Estate Income and Expenses of a Partnership or an S Corporation. The form is similar to the Schedule E and will collect income and deduction information on the entity and the rental property.
To file properly and completely, you’ll need to calculate your income and your expenses. It’s a good idea to have supporting documentation for all that you declare. Even if you don’t have to file those documents, you may need to produce them during an audit.
State Rental Property Tax Reporting
State taxes are a bit different, but you won’t really be able to file them until you have some required information from your federal return. Your rental income after expenses will be included in your adjusted gross income once you file your federal return.
The way that taxes are managed by the California Franchise Tax Board largely depends on residency. If you are a resident of California, you’re required to pay taxes on all rental income, regardless of where that property is located. So, perhaps you’re renting out a few homes in Roseville, but you also have investment properties in Orlando, Florida, and Nashville, Tennessee. You’ll need to report that income on your California state return.
If you are not a resident of California, you don’t have to worry about any rental properties that are out of state. Perhaps you live in Texas and you own Roseville rental properties as well as rentals in your home state of Texas. You will only be taxed in California on the property that’s located in California.
If you’re a non-resident, include your net income or loss on California Adjustments — Nonresidents or Part-Year Residents (Schedule CA 540NR).
If you’d like some more in-depth guidance on your rental property taxes, please contact us at Action Properties. As professional Roseville property managers, we have a deeply talented network of accounting professionals who can help.