One of the fondest dream of everyone's life is having his/her own home. Some people are lucky and can afford to have more than one home, however, some people strive all through life, but unable to own a house. Owing a home entails a number of responsibilities. Regular maintenance is one of them that you have to take in order to keep your house in a good nick. There are tax requirements that you got to fulfil if you don't want to get into trouble with the IRS.
If you own a home and live in it, you know how to report and file your expenses and deductions as specified in Schedule A of your year 1040 Income Tax Return. As far as commercial rental is concerned , that you own you should have an accountant to prepare Schedule D of your Income Tax Return.
However, what if you own home, live in it for some months of the year and have it rented out to others on the months that you do have a need for it? What if, you built a huge home and now that the kids are all married and with homes of their own, you live in a portion of your property, and have a part of it rented? What if, you initially lived in your home had to relocate elsewhere because of a job offer, had it rented out and then had to move back again after you have completed your job contract? Gosh, did not all of those scenarios look confusing?
To take the confusion off your head and to make sure that you pay the right taxes on your rental property, study each the scenarios below, choose the one that is applicable to you so you can pay the right taxes.
Rental Property Capital Gains Tax
You are given a right to a tax free Personal Residential Exclusion of up to $250,000 or $500,000 for both you and your spouse provided that you make up your mind to sell your principal residence. Provided that there are three people on the title of the property and the three of you lived there, you will be entitled to up to $ 750,000. A personal residence or a principle residence is considered as a home you own and where you have lived for at least two years out of the 5 years required. You fall into this category and qualify for this exclusion even if you rented out your residence at any time within the 5 year period and have lived there for at least 2 years. Hence, if you sold your home for between $250,000 and $ 750,000 with the conditions mentioned above, you will not have to pay capital gains stocks for the sale of your residence.
Rental Property Depreciation
When you rent out a portion of your residential property or the entire property, you may deduct the expenses you accrued from maintaining the rental property. Expenses that may qualify as tax deductions are property taxes, insurance, mortgage interest, maintenance repairs and upkeep. Improvements and major repairs also qualify as tax deductions but with a depreciated cost.
Depreciation of Rental Property
You may subtract the expenses you have to pay to maintain the rental properly provided that you rent out a portion of your residential property or the entire property. Expenses that qualify as tax deductions are property taxes, insurance, mortgage interest, maintenance repairs and upkeep. Repairs as well as improvements also qualify as tax deductions but with a depreciated cost.
Mixed-Use Property
If you live in a portion of your property and have a portion rented out, you may deduct expenses for maintenance and repair, pertaining only to the applicable square footage of the rented portion. This means if you spent $10,000 for maintenance repairs of the whole property and 20% of the area of the property is being rented, you can only use $ 2,000 as deductions in your taxes. If you have a mix-use residential property, depreciation is computed for a 30 year life and again only on the applicable square footage that is being rented out.
If you own a home and live in it, you know how to report and file your expenses and deductions as specified in Schedule A of your year 1040 Income Tax Return. As far as commercial rental is concerned , that you own you should have an accountant to prepare Schedule D of your Income Tax Return.
However, what if you own home, live in it for some months of the year and have it rented out to others on the months that you do have a need for it? What if, you built a huge home and now that the kids are all married and with homes of their own, you live in a portion of your property, and have a part of it rented? What if, you initially lived in your home had to relocate elsewhere because of a job offer, had it rented out and then had to move back again after you have completed your job contract? Gosh, did not all of those scenarios look confusing?
To take the confusion off your head and to make sure that you pay the right taxes on your rental property, study each the scenarios below, choose the one that is applicable to you so you can pay the right taxes.
Rental Property Capital Gains Tax
You are given a right to a tax free Personal Residential Exclusion of up to $250,000 or $500,000 for both you and your spouse provided that you make up your mind to sell your principal residence. Provided that there are three people on the title of the property and the three of you lived there, you will be entitled to up to $ 750,000. A personal residence or a principle residence is considered as a home you own and where you have lived for at least two years out of the 5 years required. You fall into this category and qualify for this exclusion even if you rented out your residence at any time within the 5 year period and have lived there for at least 2 years. Hence, if you sold your home for between $250,000 and $ 750,000 with the conditions mentioned above, you will not have to pay capital gains stocks for the sale of your residence.
Rental Property Depreciation
When you rent out a portion of your residential property or the entire property, you may deduct the expenses you accrued from maintaining the rental property. Expenses that may qualify as tax deductions are property taxes, insurance, mortgage interest, maintenance repairs and upkeep. Improvements and major repairs also qualify as tax deductions but with a depreciated cost.
Depreciation of Rental Property
You may subtract the expenses you have to pay to maintain the rental properly provided that you rent out a portion of your residential property or the entire property. Expenses that qualify as tax deductions are property taxes, insurance, mortgage interest, maintenance repairs and upkeep. Repairs as well as improvements also qualify as tax deductions but with a depreciated cost.
Mixed-Use Property
If you live in a portion of your property and have a portion rented out, you may deduct expenses for maintenance and repair, pertaining only to the applicable square footage of the rented portion. This means if you spent $10,000 for maintenance repairs of the whole property and 20% of the area of the property is being rented, you can only use $ 2,000 as deductions in your taxes. If you have a mix-use residential property, depreciation is computed for a 30 year life and again only on the applicable square footage that is being rented out.
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Seomul Evans is SEO services consultant for the leading Dallas Tax Lawyer. Visit the site to learn more about Dallas IRS Tax Help.