Property

[Teetee16]

Last month I purchased a rental property, do i have to change anything on my w4? I dont want to owe next year

[Emack_EA]

Purchasing a property does not automatically require you to update your W-4, but it might be a good idea depending on your tax situation.

if you used itemize deduction you may be able to deduct mortgage interest and property taxes. This could lower your taxable income, potentially reducing how much federal tax you owe at the end of the year.

it might be a smart move to review your withholding to avoid overpaying or underpaying taxes.

Let me know if that was helpful.

[KarenL4]

Since you purchased property, I am assuming you are concerned about whether you will have enough tax paid in to cover any income from the property (in addition to your W-2-based employment income). If this property is not income producing (e.g., it's your first or second home and you don't rent it), it will not impact your taxable income until you sell it (although it might give you some tax deductions).

So, the first question to ask is whether you anticipate net income from the property.  Most people with directly-owned property are filing a SCH E.  If you made net income on your property (after considering your deductions), you would want to consider paying estimated taxes on that income. If you end up with a loss, it will not increase your taxes due in that year.

If you have a rental property and are also providing substantial services and meet all criteria, you may be filing a SCH C.  Most folks do not qualify.  Net income on a SCH C is also subject to self-employment taxes in addition to income taxes.  Here's a great explainer article on that. 

Estimated taxes are due 4/15, 6/15, 9/15 and 1/15 for the final payment for the prior year.  You can also increase your W-4 withholdings instead, of course, but it is probably easier to pay the estimated taxes (the IRS doesn't care which way they get the money, as long as it is timely and enough.  The self-employment article also talks about underpayment penalties. 

Hope this helps.  Great question, TeeTee! If I didn't understand, don't hesitate to follow-up.

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Regards,

Karen

TurboTax Expert

[GabyC-EA]

Congratulations on your new investment!

Owning rental properties will undoubtedly impact your tax liability at the end of the year. To prepare, I recommend calculating your taxable profit from the investment property. If you anticipate a gain, you can either adjust your paycheck withholding or make estimated quarterly payments directly to the IRS—the latter option provides greater flexibility in adjusting payment amounts.

Below are useful tools, informational resources, and IRS links to help you manage your rental property taxes:

1. Rental Property Income Calculator  & Depreciation Calculator  – Various online tools can help you calculate your net income, factoring in rental earnings and depreciation.

2. Understanding Rental Income Taxation  – Rental income is generally classified as passive income for tax purposes, even if you actively manage the property. Losses from rental properties typically offset only other passive income, not active income like wages or business earnings.

3. TurboTax Rental & Real Estate Tax Guide  – A collection of articles that explain how rental properties are taxed and offer guidance on managing deductions.

4. IRS Tax Withholding Estimator   and TurboTax Calculators & Tools – These tool helps determine how much tax you owe based on your income, deductions, and credits.

5. IRS Estimated Tax Payments  – If you prefer not to adjust paycheck withholding, you can pay estimated taxes directly to the IRS.

By planning ahead and utilizing these resources, you can better manage your tax obligations and avoid surprises at tax time.

Good Luck! 

[Emack]

In addition to my original response above, if your plan is to use this property for rental and the property is expected to generate significant net income, you want to avoid underpayment penalties and prefer to have more tax withheld from each paycheck instead of paying quarterly estimated taxes, then you must:

1 Use the IRS Tax Withholding estimator (https://www.irs.gov/individuals/tax-withholding-estimator)

include expected rental income and expenses under "other income."

2- Update your W-4

Step 4(a) Other income: enter expected net income (rental income- expenses);

or use Step4(c) to have an additional fixed amount withheld from each paycheck

For Example: if your rental brings in $12,000 a year and expenses are $9,000, you'll have $3,000 in taxable income. At a 22% bracket, that's about $660 in tax. You can either:

1- Add $660/ number of pay periods to Step 4(c), or

2- Pay quarterly estimated tax.

I hope this additional information will help you make the right decision.