Tax Filing Questions as a Landlord

[jennifervphan]

Hello,

I recently bought a rental property and could use your help in answering these tax questions:

1) I saw something online where a real estate investor wrote off 10% in property management fees for himself since he managed his property himself. I paid my friend $930 to manage my property in 2023 but 10% of the 2023 rental income received was $4,040.33. Can I write off the $4,040.33 amount off on property management fees?

2) Can I include my internet bill for 2023? I used my internet to research and call vendors/repairmen when things broke. If so, is it the full amount or prorated amount (like i use it for half personal and half work)? Do internet bills fall in the “supplies" section tied to the rental property?

3) I returned $900 towards the tenants security deposit in 2023 - do I reduce the 2023 annual rental income by $900? I would assume yes since I do include all security deposits received in the total rental income amount.

[KrisD15]

1. No, you report what you paid the manager as an expense on your Schedule E.

3. Security Deposits should never be reported as income, you're just holding the funds. 

If you keep the security deposit for damage, the security deposit is then claimed as income, and the repairs for the damage as an expense. 

2. This depends on whether you are filing Schedule E or Schedule C.

Schedule C is for a Sole-Proprietorship. This would be a situation for someone in the business of maintaining and managing rentals for a living. The "Real Estate Investor" you mention earlier most likely filed Schedule C and performed services relating to rentals as his form of Self-Employment. He would pay Self-Employment tax on his income and also have a wider array of Business expenses. 

You, on the other hand, are receiving  "passive" income. You don't do the daily tasks involved with the rentals, you say you have a manager for that. You are NOT subject to Self-Employment tax on the income. Your phone and internet expenses do not sound as if they are ordinary expenses claimed on Schedule E, but if you have a log and can prove to the IRS that these expenses were required, you could expenses them.

HERE is an IRS link about rental income

HERE is a TurboTax link about reporting rentals on Schedule C or Schedule E 

[jennifervphan]

Thank you!