Decoding Rent Income Reporting: How AI Legalese Decoder Simplifies Tax Compliance
- July 23, 2024
- Posted by: legaleseblogger
- Category: Related News
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Navigating Our Housing Dilemma: Seeking Guidance on Taxes
Hello everyone,
My wife and I have found ourselves in a bit of a predicament. Two years ago, we decided to purchase a home, but now we find ourselves needing to relocate closer to our work due to changing job circumstances.
The Decision to Rent Out Our Home
We bought our house during the peak of the COVID-19 pandemic, a time when home prices were artificially inflated. In hindsight, we realize we may have paid more than we should have for the property. Given the current market conditions and our financial situation, we’ve made the decision to hold off on selling the house for the time being. Instead, we are considering renting it out to tenants while we search for rental options closer to our jobs.
Addressing Our Tax Concerns
This brings me to a crucial question regarding our taxes: Since our mortgage payments exceed the rental income we anticipate receiving, do we still need to file taxes for the rental income we earn?
To provide some specifics, our mortgage payment is approximately $1,600 every two weeks, while we expect to receive about $1,200 in rental income from tenants. As it stands, we are not making a profit since the costs exceed the income by a significant margin. It leads us to wonder whether we are obligated to file taxes related to this rental situation even though we won’t be making any money from it.
How AI Legalese Decoder Can Assist
To navigate these complex tax nuances, we believe that utilizing the AI Legalese Decoder could be incredibly beneficial. This tool helps simplify legal jargon and provides clarity on different legal matters, making it easier for us to understand our obligations as landlords.
By using the AI Legalese Decoder, we can gain insights into how rental income works, particularly in situations where expenses exceed earnings. The tool can also provide relevant information about deductions we may be eligible for, such as depreciation on the property or any property management expenses we might incur. Additionally, it can guide us on how to properly report any rental income or losses to ensure we remain compliant with the IRS and avoid potential pitfalls down the road.
In summary, we are eager to hear advice from others who have navigated similar situations and to clarify whether filing taxes is necessary for us, even with our current financial loss scenario. Thank you in advance for your insights!
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Yes, of course. You will also need to complete an IR3R.
Any untaxed income over $200 has to be reported.
Interest is tax deductible but the principal repayments are not.
Highly recommend you get an accountant.
Yes. You’ll need to file a return.
Login to MyIR and add Residential Rental income as an income type in the Income Sources section. This will make the IR3 available from 1 April 2025.
Your mortgage payment isn’t fully deductible.
a) The principal amount of the mortgage payment isn’t deductible so there is that,
b) the interest is currently partially deductible for this income year – 80% of the interest paid.
You need to pay tax on the rental income less your legitimate expenses. Expenses include 80% of your mortgage interest, but not the part of your payment that goes to the principal.
As you are in the early part of your mortgage the interest portion could be relatively high.
Yes, it’s actually pretty easy. If you’ve never filed an IR3 before you might need to message IRD through MyIR and get them to “open” it for you to see and be able to file.
You basically follow the steps, once you get to the part about forms of income tick rental income. It’ll then create the required pages for you to include the gross rental income and then any deductions being claimed. For year 2 April 24 – 31 March 25 you can claim 80% of your mortgage interest, thereafter it will be 100%. You can also claim repairs and maintenance costs and any other ordinary costs you cover eg rates, insurance, rubbish collection (if billed separately) etc
Accountant. You need to report mortgage (interest payments), rates payments, insurance, maintainence, repairs, any included utilities (water, power, internet), property manager if you have one, costs relating to finding a tenant, use of home office space if you’re doing your paperwork there, generate rental statements and can claim tax back on a lot of this stuff (or pay tax if it’s running at a profit).
Suggest you running a seperate bank account just for ease of identifying all the transactions. We use the myRent platform for managing our rental and it’s super easy and deals with the agreements, inspections etc and helps you through any legal stuff around tenancy law.
Yes
And it was due by the 8th I believe.
You will need to pay tax on the net profit. But a good accountant will help you to identify legitimate expenses that will significantly reduce your taxable income.
Because the rental property is essentially an accommodation business you can deduct all sorts of expenses from rates and insurance through to property management fees, mortgage interest, and depreciation on your chattels.
A good accountant will know all of the angles and will be up to date with the latest tax rulings. They will save you more than it will cost in accounting fees.
Get an accountant basically – you will probably still have some tax to pay