Putting rental property income in your tax return should be the most ordinary task any landlord must know. Not everyone is keen about filing this form, however, nor they are willing to do the necessary research to at least master the basics.
It’s true that managing a rental property can be challenging to some extent, and you sometimes have to wear many hats at certain points, but there’s no excuse to not knowing how to fulfil your tax duties properly.
Even if you hire a professional to take care of your rental property tax return on your behalf, you must still be aware and understand the items that should be and shouldn’t be there.
What Should Be
In a nutshell, your tax return must comprise every form of rental income you earn. It doesn’t matter if you’re renting a piece of land, a private room, a house, a set of apartment units or an entire building, anything you make from being a landlord will be liable to income tax.
When it comes to payments in advance, the rent will be taxable in the year you receive it—not when it’s supposed to be used for. The tax year in New Zealand runs from April 1 to March 31 of the following year, so keep in mind when you receive the rental payments.
What Should Not Be
Any amount you receive for the tenancy bond that’s passed on the Tenancy Bond Centre must not be in your tax return. This is technically not considered an income, so filing is not necessary.
The amounts you received from the Tenancy Bond Centre to cover rent arrears and damages, on the other hand, are considered an income.
What Should Be Deducted
The Inland Revenue provides a long list of expenses you can deduct from your rental income. Insurance, paid home loan interest, maintenance and repairs, real estate agent fees and commission and mortgage-related legal charges are some of the common deductible expenditures.
To maximise your deductions, it’s best to consult your tax accountant to include every single deductible item and lower your taxable rental property income as much as possible.
Filing a tax return may seem straightforward, but this process can be confusing and complex if you’re not 100% familiar with the ins and outs of taxation. Instead of risking any penalty, hiring an experienced professional makes absolute sense to simply avoid unnecessary headaches along the way.