No one wants a big surprise at the end of the year regarding rental property taxes. And it’s legal as long as you diligently follow IRS guidelines for renting out residential property. As a landlord, you can own a substantial amount of rental property and still pay little to no taxes. Given the high cost of real estate, renting is the only viable option for millions of Americans. That taxable amount will be calculated based on your tax bracket. After deducting all of the allowable expenses for maintaining the property, you’ll be taxed on the adjusted amount. For example, let’s say you rented out your basement apartment for $1200 a month, earning an extra $14,400 last year. Any net income that you generate from a rental property is taxable as income on your tax return. The IRS defines rental property as any single home, mobile home, vacation home, apartment, condominium, or similar dwelling rented out more than 15 days a year. Any contractor making over $600 will also need to receive a 1099 for landlord duties performed. When you file your taxes, you’ll need to identify certain payments as gifts, not income.Īs a landlord, you’ll probably be using some contractors at one time or another for cleaning, maintenance, and property management. You will still, however, receive the 1099-K for all transactions over $600. You can still receive cash gifts and reimbursements that aren’t considered taxable. Of course, if you have been operating your business by the book before 2022, you’ll see little change in the way you file your taxes.Īnd no, this doesn’t suddenly make all peer-to-peer transactions taxable. Starting in January 2022, you will receive a Form 1099-K from the IRS with all your reportable payment transactions over $600 in the calendar year. If you use Venmo to collect rent, they will be required to notify the IRS about the rental income you receive.
It is estimated that the changes in reporting taxable income will generate over $8 billion in additional tax revenue over the next ten years.Īs with any small business owner, the new rules will affect landlords with one or more rental properties. This is a significant drop from the current $20,000 and will have the most impact on the self-employed, gig workers, and anybody else with a lucrative second career selling items on Etsy, Poshmark, and other online marketplaces. Reporting guidelines for digital wallets and other third-party payment processors have now dropped to just $600 in aggregate payments. The new changes in how cash app business transactions are reported are included in the American Rescue Plan Act, signed into law by Congress in 2021. If you receive over $600 in income this year on Venmo, Zelle, or PayPal, you will receive a Form 1099-K that you must fill out and file with your taxes next year. New federal tax laws are designed to make it more difficult for small business owners and self-employed people to avoid paying taxes. Beginning in 2022, however, the IRS will start checking digital wallet business transactions over $600. Today, only digital transactions of $20,000 or greater are required to be reported to the government. The unreported or under-reported income represents nearly 10% of the nation’s GDP and results in billions of dollars in lost tax revenue every year. Though estimates vary, the underground or shadow economy generated as much as $2.5 trillion in unreported income in the U.S. In reality, most of it is far less sinister, referring to any transaction of goods and services not reported to the government. The underground economy, also known as the shadow economy, used to be the stuff of gangster movies, with shady characters trafficking drugs, weapons, or stolen goods. Currently, it’s relatively easy to supplement your income with unreported cash earnings from a multitude of side hustles. We’re still in the honeymoon phase with online banking, and up until recently, the IRS has had a somewhat laissez-faire attitude about it. No more bounced checks or hefty fees for non-sufficient funds. And landlords no longer have to gather checks from multiple units and physically take them to the bank. Gig workers collect their fares or delivery fees without ever having to exchange cash or credit cards. Payment processing apps like Venmo, Apple Pay, and PayPal have become the go-to method for sending money quickly from one bank account to another. If you’re a gig worker, self-employed contractor, or landlord, you’ll want to take note of some changes that may affect the way you handle cash transactions and prepare your rental property taxes moving forward.
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