Here’s a question: Do you have to take tax deductions?
Taking less deductions may seem like you’re doing the government a favor by paying more in taxes, but it’s actually a criminal offense.
If you build a rental property business and neglect to write down deductions on your home, you are in violation of federal law. You are required to list all legal deductions and must file them with the IRS (Internal Revenue Service). There’s no way to get around this.
This means if you incur certain losses while building your rental property business, you must tell the government about it. Not doing so will appear as if you’re trying to commit financial fraud, and could land you in some very serious trouble.
Losses You Must Report
To put it simply, any loss you have in your business must be reported.
According to the IRS’s own official guidelines, they say you must document the following losses to them if they happen: real estate damage, theft, and capital gains.
If your real estate is damaged and it costs you money out of pocket, you have to report it.
This can be as minor as a toaster being replaced or an entire roof on a house. If you have to fix it, you should report it.
If someone steals from you, you have to take this as a deduction whether you want to or not.
Let’s say an oven goes missing from your home one night. Simply report its value and let the IRS know it happened.
This is an obvious deduction. If you sell a property for less than you paid for it, that loss must be reported.
Even if you lose money on a real estate project, the government wants to know about it. The more information they have, the better.
Something To Consider
We aren’t legal experts and you shouldn’t take anything we say as legal advice. But we do know a thing or two about rental properties and real estate.
That’s why we built the Rental Property Calculator. We built a simple tool that allows anyone to calculate how much they can earn with a rental property.
Feel free to try it and let us know what you think!