Property taxes are levied and collected throughout the US. However, there are differences in the tax rates and some areas collect more tax than others. Rates for property taxes are also different in each state; states like Louisiana have tax rates as low as 0.18 percent while New Jersey collects the highest amount at 1.89 percent . There are also different regulations for those who are real estate professionals and those who rent out their properties as an additional source of income.
Property taxes on rental real estate
If you aim to get a steady flow of income from your property on rent, here are a few taxes you need to be aware of.
- Rental income
Money received as rent is income, which is taxable in the year it is collected, and when it was to be received in the past. So payments made in advance are also to be included in it.
- Expenses paid
The expenses that are paid by the tenant are also to be taken as income. They can be deducted from the rental payments in the following month.
- Trade for service
The tenant can offer a service to you, the landlord in place of rent. For example the tenant may agree to make some major repairs in the home in exchange of the month’s rent. The amount still goes as an income, but can be deducted as an expense on the property later.
These taxes may seem like a a lot, but being a landlord you also enjoy a long list of deductions as part of property taxes, that will off set the taxes to a certain extent. The biggest break probably comes from the exclusion of self-employment taxes charged by the government.