Landlord Tax Documents: Everything You Need To Know For Tax Season

Accurately tracking and reporting your rental income and expenses as a landlord is crucial for avoiding potential fines and reducing your tax liability. To help you stay on the right track, we've put together this comprehensive guide outlining the main landlord tax documents you need to know about. 

It's important to note that tax laws can be complex and subject to change, so consulting with a certified public accountant (CPA) is strongly recommended to ensure compliance with current regulations. 

Overview of Landlord Tax Documents

Landlords are required by the Internal Revenue Service (IRS) to report their rental income accurately through the proper tax forms, which can vary based on their specific circumstances. 

These forms may include Form 1099, Form 1040 or 1040-SR, and Form 8825. Since each form has different requirements, it's recommended that landlords seek the assistance of a certified tax accountant to ensure their rental property taxes are filed correctly. 

Failure to file the appropriate forms can lead to costly penalties and interest as well as missed or disallowed deductions. This can become complex with regulations regularly changing. For example, the IRS is introducing a new requirement that landlords report rental income over $600 collected through payment processing platforms using Form 1099-K. This change has been delayed and is now set to be implemented in 2024. Learn more about the upcoming 1099 changes.

As such, it's crucial to seek professional advice to ensure your tax reporting needs are met. To access additional information and up-to-date tax forms, you can visit the official IRS website. 

To learn more and access up to date tax forms, visit the IRS website.

About the Main Landlord Tax documents

Schedule E Form 1040

Form 1040 is a legal document used by taxpayers to submit their yearly income tax returns. Landlords can use the Schedule E section to report their rental income, expenses, and applicable MACRS depreciation related to their rental real estate. 

The form is divided into various sections that enable taxpayers to report their income and deductions to determine the taxes they owe or the refunds they expect to receive. 

Additionally, depending on the type of rental income, taxpayers may need to attach additional forms or schedules to their tax return. For taxpayers aged 65 or older, Form 1040-SR uses the same schedules and instructions as Form 1040.

Form 1099

When paying suppliers and contractors where you have paid for services you may be required to provide them with a Form 1099-NEC. 

If you’ve received more than the minimum tax return filing requirement via payment processing platforms in the prior calendar year, you should receive a Form 1099-K. This will need to be submitted with your return to declare any rental income collected through these payment processing apps.

Note: Under new rules being implemented in the 2024 tax year self-managing rental property owners will need to file a Form 1099-K if they accepted payments amounting to more than $600 via card or through a third-party payment software (such as Venmo, Paypal or a purpose-built software like Landlord Studio).

A 1099-Misc may also be relevant if you collect rent via cash or check.

Form 8825

For incorporated real estate investors, such as those operating as a partnership or S Corp, Form 8825 is used to report both income and deductible expenses related to rental properties they own and operate. This form is particularly relevant for those who have multiple rental properties, as it allows for the aggregation of income and expenses across all properties.

It's worth noting that Form 8825 requires detailed information about each rental property. As such, it’s worth noting that incorporating your rental properties can significantly impact how you report your real estate income and expenses. Seeking professional advice from a certified tax accountant can help ensure that all relevant forms, including Form 8825, are filed correctly and on time.

Form 1098

Landlords should receive a Form 1098 from their mortgage lender each year, which reports the amount of mortgage interest paid. This form should be used to ensure that the correct amount is reported on Schedule E.

About Additional Landlord Tax Documents for Partnerships

Partnerships also need to submit these additional tax documents:

• Form 1065: This is to report activity from your business operations including revenue, expenses, and gains & losses. 
• Schedule K-1: This is used to report net profit and losses attached to each owner’s interest in the company. 
• Schedule E + Form 1040: Second page of Schedule E only in this case, as the first is strictly for individuals reporting rental income as we covered in the previous section. 

About Additional Tax Documents for S corps

S Corporations also need to submit these tax documents:

• Form 1120S: Submit this to report profit or losses according to each shareholder.
• Schedule E + Form 1040: Second page of Schedule E only in this case, as the first is strictly for individuals reporting rental income as we covered in the previous section.

W-2 tax documents for employees

If you have employees working for your real estate business and pay them wages or travel allowances you will need to declare these wages. If so you'll need to use Form W-2.

Also known as a “Wage and Tax Statement,” Form W-2 is a crucial document for both employees and employers. It contains important information about an employee's annual wages, tips, and compensation, as well as the amounts of federal, state, and Social Security taxes withheld from their paychecks throughout the year.

Employers are required by law to provide their employees with a copy of their W-2 form by January 31st of each year, and they must also file the forms with the Social Security Administration and the Internal Revenue Service (IRS).

How to reduce your tax bill

1. Claim every deduction

Accurately track all of your deductible operating expenses throughout the tax year, don’t leave it to the last minute. The easiest way to do this is with purpose-built property management and accounting software like Landlord Studio. 

With Landlord Studio you can:

• Digitize receipts at the point of sale so you never lose a receipt again.
• Track mileage in real-time with our in-built GPS mileage tracker.
• Connect your bank accounts to reconcile transactions with a few quick taps for faster and more accurate accounting.
• Run reports for detailed oversight of your portfolio finances and a streamlined tax time. 

Check out our article for more information on deductible expenses and reducing your tax bill.

2. Qualified business income deduction

The Qualified Business Income (QBI) deduction allows for a deduction of up to 20% of pass-through business income, up to a cap of $163,000 for individuals or $326,600 for married taxpayers. Pass-through income refers to any income generated from a pass-through entity, such as an S Corporation, partnership, or sole proprietorship.

While there are limits to the QBI deduction, the amount that can be deducted is still significant. It's important to note that even if your pass-through income exceeds the cap, you may still be eligible for a partial deduction.

The QBI deduction is a valuable tool for many small business owners, but it can be complicated to navigate on your own. It's always advisable to consult with a certified tax accountant to ensure that you're maximizing your deductions and meeting all IRS requirements.

If you're interested in learning more about the QBI deduction, the official IRS website provides further information and resources. 

3. Depreciation

Depreciation allows you to deduct the value of the property (excluding the land value) against your income tax over what the IRS deems its ‘useful’ life. 

• For residential property, the useful life is 27.5 years. 
• For commercial property, the useful life is 39 years.

For example

You purchase a property for $350,000 where the land value is $75,000. This leaves you with a depreciable property value of $275,000. Divide this by 27.5 years and you get an annual depreciable amount of $10,000.

As you can see, depreciation can be a large deduction and really help your real estate business prosper. It is, however, Worth noting that some of the depreciated amount (whether you accurately claim the total allowable amount or not) will be reclaimed when you sell the property in a process called depreciation recapture. 

Learn more about depreciation and depreciation recapture here.

Manage Your Rentals With Landlord Studio

To make tax season less stressful, it's essential to understand which tax documents to file and to keep track of important transactions such as rental income and expenses. Landlord Studio makes this process easier with a range of reports that can be generated when you need them.

For example, generate a supplier expense report and determine if you need to supply contractors with a 1099-NEC, and use the custom designed Schedule E report to make tax filing a breeze. You can also easily share your data with your accountant!

Additionally, Landlord Studio's real estate accounting tools allow you to track income and expenses for all your rental properties with an in-built receipt scanner and mileage tracker, customizable reports and a best in class bank feeds feature designed to help you reduce errors and increase the speed of you accounting.

By using these tools, you can streamline the tax preparation process and minimize the risk of costly mistakes or penalties. It's always advisable to consult with a certified tax accountant to ensure that you're meeting all IRS requirements and maximizing your deductions.