Independent rental owners of homes, condos and apartment buildings are generally considered engaged in a trade or business. As such, they enjoy key small business benefits under federal and state tax codes. It seems as if tax codes will always favor rental owners.
It's also recognized that even the owner of a single house that is offered for rent is providing essential goods and services to the marketplace while taking on business risks to do so. Locally, almost half of the housing in San Diego is provided by rental owners. During the housing bubble, many foreclosures were the result of rental owners who either did not understand or ignored the business risks involved. Therefore, favorable tax treatment is the economic stimulus normally provided by the government to encourage investment in real estate ownership and rental operations. The need for such stimulus will continue if we are able to get real estate on solid footing again.
Fully utilizing the tax codes in order to enhance your investment return is an important piece of your rental ownership. Fully understanding your accountability as a small rental business owner subject to IRS regulations is also important. Here is a quick list of suggestions for consideration:
- All rental income and expenses for 2013 should be documented and organized for review.
- If you are a self-managing landlord, you should have a separate bank account that delineates all rental business income and expenses.
- If this financial information has been correctly coded and spread within a computer application, it is easier to review and compare against your previous experience and your expectations.
- If you employ professional property management you will be provided with all the above information monthly and at year's end in a format that is easy to review with your tax professional.
San Diego's real estate market is still showing positive cash flow for certain properties… even along the coast in Enciniatas, Carlsbad and Oceanside. Are you ready to become a landloard?: