The Ultimate Real Estate Investor Tax Season Checklist

Tax season is quickly approaching. Real estate investors need to prepare by keeping track of expenses, transactions, and more.

With the new year comes everyone’s favorite time: tax season. Although it’s not for a few months, it’s better to stay ahead and get your ducks in a row.

Taxes can cause stress for investors, but it doesn’t have to be when you have an organized checklist in place. This article is designed to provide general information about the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Consult with your own attorney, certified public accountant (CPA), and/or other advisor regarding your specific situation.

Below are some general guidelines you can follow during this tax season so that no financial documents or transactions slip from under your eye.

1. Expense Tracking

Income from real estate investments are crucial to any investor. You need a plan to mindfully keep track of your expenses by mapping them out. In order to track your expenses, you need to define what they are and keep them in order. Much like the way we keep track of appointments and tasks using calendars and checklists before we are bound to forget one!

Acquisition Costs

Your acquisition costs come from your rental properties. Keep track of your acquisition costs by preparing a purchase journal from your closing statement. While it could be a complicated transaction better suited for your CPA, it’s a great idea to at least understand a purchase journal. Acquisition costs include:

  • Home price or down payment
  • Closing costs
  • Loan costs
  • Rehab costs

Monthly Costs

Keep track of every cost happening on a monthly basis. Each cost factors into your return and makes this figure as accurate as possible. Any real estate investor pays close attention to their monthly costs so that they stay on track with their desired ROI. However, as a tax tip, knowing these costs keeps your filings organized. Your monthly costs include:

  • Mortgage payments and expenses
  • Insurance
  • HOA fees
  • Maintenance
  • Lease and marketing fees
  • Office expenses
  • Depreciation or appreciation

2. Gathering Documents

Having the right figures and expenses tracked isn’t enough for the Internal Revenue Service (IRS). Your documents are evidence that your business transactions actually happened at some point during the year. Real estate investments are like a business and should be treated like one. Start by learning about tax planning and what forms you need to file. Below are forms that most real estate investors usually need:

  • Form 1040 from the prior year
  • Form 1098 reporting how much mortgage interest was paid
  • Form W-9 and 1099 for employees and contractors if you had any
  • Form W-2 if you’re a full time employee for somebody else

As for other documentation, we’ve also prepared a list of records that backup your expenses when you file. These may include:

  • Records of your rental income
  • Capital expenditures (upgrades, renovations, etc.)
  • Insurance premiums
  • Repair receipts
  • Maintenance receipts (landscaping or snow removal)
  • Management expenses (property management or even your costs from working in an office)
  • Marketing expenses (your expenses from advertising your property for rent or finding tenants)

3. Dates and Deadlines

Keeping your dates and deadlines in mind helps with planning alongside your CPA. Missing a deadline costs you in penalties and interest until your balance is paid off. Extensions are also available in case you need them.

If you’re going to have trouble paying taxes, set up a payment plan. Don’t set yourself up for the worst-case scenario. At least file and set up a payment plan instead of being late and paying penalties.

Since tax laws are constantly updated, be sure to consult your CPA to ensure that this information is still accurate at the time that you’re reading this article. It’s also important to communicate as much as you can with the IRS. While it hurts to be late, talk to somebody right away so they can cooperate with you. The key here is to make an effort rather than being late and not responding. Filing extensions is a common practice for businesses and the IRS has a system for it.

4. Making Notes

While you prepare the necessary documents and expenses for tax season, make sure you take notes in case something changes. Make notes and reminders attached to your documents. During tax season, you will be communicating with your CPA frequently. They ask plenty of questions to make sure everything is in order.

For instance, maybe you know that a real estate tax law is changing later this year. While a change in law may cause confusion for many, you can write down the new requirements needed. What if your HOA fees are on the rise? Or if a supply shortage caused higher maintenance costs than usual? Make a note of these changes so if you compare tax filings from different years, you can easily spot differences.

Stay on Top of Your Taxes This Season

Real estate investors don’t have to stress over tax season if they’re prepared ahead of time. Stay organized by making a checklist and putting in a little extra effort throughout the year. You’ll thank yourself when you have all of your expenses, documents, and dates on-hand. Once your accounting team has everything that they need, you can rest assured knowing that you went into tax season with a plan.

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Kyle Spearin

Kyle is Sundae's Real Estate Editor. As both an investor and content marketing professional, Kyle combines his passion for real estate investing and educational background with his love of helping others. His experience with real estate tech companies, including contributing to BiggerPockets Pro, gives him insight into markets across the United States.