When you start shopping for a home loan, it might be easy to assume that all lenders are the same. After all, they all have mortgage brokers, paperwork, and impressive offices. However, when you really start exploring the details, you might discover that lenders all have something different to offer. On my blog, you will learn more about financial terminology, so that you can determine what you are getting into when you sign the terms of an agreement. This information is presented in an easy to understand, friendly way, so that you aren't bombarded by terminology and industry jargon that you don't understand.
When moving on from one house to another, many homeowners consider the potentially profitable option to rent out their old home rather than sell it. But while this can be a great way to build a secondary income stream, it does come with some complications. An experienced tax preparation service can help you make the right decision and implement it. Here are a few key things to learn about.
1. Tax Implications for Non-Primary Homes
Homeowners get a big tax benefit when owning a primary home to live in — including a waiver of income tax on a significant portion of any profit from a sale. However, when you stop using the property as a primary home, you lose this tax benefit. How will this affect your future profit from selling the rental?
2. Business Entities and Taxes
When you become a landlord, you may choose among a variety of business entities — including sole proprietorships, LLCs, C corporations, S corporations, and partnerships. What are the tax implications of each choice? For instance, you may be able to reduce personal taxes by incorporating the landlord business but reporting could be more complex.
3. How to Keep Business Records
Once you start any kind of business venture, you must keep good financial and legal records. Do you know what you'll need to track, document, deduct, separate, or file with agencies? Probably not, which could get you in trouble with oversight agencies, including the IRS. Learn about bookkeeping, set up a record-keeping system, and separate business and personal books.
4. Filing Taxes In Multiple States
Are you moving to another state? If so, renting your home in another state may complicate the landlord process. The business income and expenses in your old state will tie you to it for as long as you keep the rental. You may have to report income and file income (and other) tax returns in more than one state and follow each state's rules. This calls for professional assistance.
5. Different Income Types
Finally, remember that not all income is taxed the same. Passive income is often taxed at a lower rate than active income (such as your salary). This can benefit landlords who aren't actively involved in rental management. Find out more about how to design passive or active income to maximize tax benefits.
Where to Start
Ready to learn more about the process of becoming a small-time landlord as you move to a new home? Begin by meeting with a tax preparation service in the state where the property is located. As they help you learn more about these vital issues, you'll be able to come to a decision about your situation.
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