This particular brief article discusses the various Internal Revenue Service tax documents you need as a property manager to be able to properly account for, and report, your rental property profit to the IRS. Depending on the kind of legal body that owns the rental, the tax forms needed will vary, as is laid out just below (individual, partnership, corporation, or LLC). View the page called Best Rental Property Ownership, included in this Guide, to get more details concerning legal entity rental property ownership.
Quick Tip: You’ll find the various forms outlined below on the Revenue Service’s webpage: http://www.irs.gov/Forms-&-Pubs. The various necessary forms will undoubtedly be contained in any tax preparing software, if you use one of them.
Shared ownership with a wife or husband, shared tenancy with right of survivorship, along with tenancy in common will be included.
Form 1040. Foremost, you must have Form 1040, the form submitted by all independent tax payers. The net rental property earnings or losses subjected to tax will be at line 17 of the very first page in Form 1040. Please be aware that as a law abiding property manager with rental property activity, you aren’t allowed to utilize the shortened Forms 1040A or 1040-EZ.
Schedule E. The addendum to Form 1040 that you must be familiar with is Schedule E. Of Schedule E’s diverse purposes, only the use of reporting rental property profits and expenditures is useful to your needs. The only portion of Schedule E you have to fill in is the segment entitled as “Part 1”. Different essential notes to remember: when you own the rental jointly with anyone other than your husband or wife, report only income you collected plus the expenses you sustained. Furthermore, do not forget that if you rented for only a part of the entire year, or you are actually leasing a section of your own private house, you need to keep track of your expenditures regarding rental and non-rental purposes. To get more tips, check out Tax Deductible Rental Property Expenses, the article collection that is included in this Guide.
Form 4562. Form 4562 must be used to determine depreciation of your rental property, that you can deduct on line 18 of Schedule E. To get more advice, see the article titled, Depreciation Expenses for Rental Property, that is included in this Guide.
A general or limited partnership or S corporation is included.
Form 1065/1120-S. For people who have a joint venture, you have to use Form 1065, the form a partnership uses to report everyone of its company activities. Form 1120-S is used by an S corporation to report company operations. Schedule K, line 2 of Form 1065 or 1120-S is where your annual net rental property loss or profit will be reported (Schedule K is embedded in the documents).
Form 8825. This document operates like Schedule E, but is for partnerships and S corporations. It’s basically similar to Schedule E. Make sure you disclose complete amounts of all earnings and costs suffered by the partnership or corporation (these are divided among each business partner or shareholder in the future).
Schedule K-1. The net rental income or losses due to each investor or partner is reported by this tax form, as outlined by the ownership interest of each shareholder or business partner. Each individual partner is provided with his or her own personal K-1 and must report the elements of that K-1 on her or his Form 1040, Schedule E, Part II.
Limited Liability Co-ownership
You can file as if you are an independent property owner since, for tax requirements, a single-member LLC is a disregarded entity (see above). A multiple-member LLC may choose to be taxed as either a partnership or as an S corporation (look above).
Auburn CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.