Rental property returns and income tax calculator

"Any payment you receive for the use or occupation of property" is how the IRS defines rental income.

Here are additional types of rental income:

• Advanced rent payments: If your tenant pays both the first and last month's rent before moving in, then you would count both payments as income for the year in which they're received.

• Portions of the security deposit that you keep: The security deposit isn't counted as rental income if it's returned in full to the tenant. If, however, you keep a portion of the deposit for any reason, like to repaint the room, then that amount counts as rental income.

• Expenses your tenants pay for if they're not required to do so: If your tenant pays their electricity bill and subtracts it from their monthly rent, then the sum used to cover the bill counts as rental income.

• Services rendered in place of rent payments: If your tenant provides you with services in place of rental payment, like charging you $50 for piano lessons, then that $50 counts as rental income.

Rental property provides an investor with several potential passive income streams. You collect rent monthly; your investment property appreciates over time; you earn equity in your home, which you can use to get a low-interest loan; and you can sell your property. To avoid paying capital gains taxes, you can execute a 1031 exchange, which is when you use the profits from the sale of your property to buy a property of equal or greater value.

Before you invest in a rental property, consider whether you’re up to the demands of being a property manager. In addition to the physical labor required to be a property manager, there is also the time factor to consider. This could include time spent on tasks as diverse as making trips to the store to buy supplies to waiting for tenants to arrive for interviews. Emotional labor is also involved, since it can be stressful to interact with tenants, answer emergency calls, and deal with vacancies. Some of your responsibilities will include:

• Tenant Management — Finding tenants, screening tenants, drawing up legal lease contracts, collecting rents, and evicting tenants if necessary.

• Property Maintenance — Repairs, upkeep, renovations, emergencies and more.

• Administrative — Bookkeeping, setting rent, taxes, paying employees, budgeting, etc.

You can hire a property manager to handle all of these duties, but they earn 4% to 12% of the collected gross rents, which can be a lot if you only own one property. If you own multiple properties, however, a property manager is well worth the investment.

There are various ways to calculate a property’s value using rental income, but there are two quick and easy ways to estimate your potential net income:

• 50% Rule: Half of your income will go to operating expenses, which doesn’t include your mortgage payment. The other 50% can be used to make your monthly mortgage payments. This method can give you a rough idea of your income stream and potential profit.

• 1% Rule: Your gross monthly rental income, meaning the amount you make before taxes, should be at least 1% of your property purchase price, after repairs.

If you want to invest in real estate but don’t want to own any property, you can invest in Real Estate Investment Trusts (REITs). A REIT is a company that invests in a variety of real estate options. It can be traded privately, publicly like a stock, or be public but not traded. REITS are a great way to invest in real estate without getting fully invested in real estate. Owning REIT stock enables you to ostensibly own a portion of several properties.

To begin with, you have to rent your property for more than 14 days per year. Otherwise, you don’t need to report it. You do, however, have to report income and expenses if you rent your property for more than 14 days per year, or if you live in the house more than the greater of 14 days or more than 10% of the number of days you rent the property (20 days, for example, if you lease it for 200 days). ‍ Discover four things you should consider if you’re in the Airbnb rental market.

There’s no simple answer to this question because there are so many factors to consider. Your wealth, tax bracket, home cost, etc. will all impact what percentage of the closing cost that may or may not be tax-exempt. Additionally, you need to see which approach, taking a standard deduction or deducting your closing costs, will save you the most money. The IRS lists the following costs as deductible:

• Sales tax issued at closing

• Real estate taxes charged at the closing

• Mortgage interest paid at closing

• Real estate taxes that were paid for by the mortgage lender

• The interest you paid at the house’s purchase

• Loan origination fees (a.k.a. “points”)

The following are not deductible:

• Pre-move-in utility charges

• Fire and flood insurance or certificates

• Pre-closing rent (if you moved in early)

• Mortgage refinancing

• Title fees

• Real estate commissions

• Appraisal costs

• Home inspections

• Costs of reporting credit

• Appraisal costs Home inspectionsCosts of reporting creditTransfer taxesAttorney fees

• Appraisal costs Home inspectionsCosts of reporting creditTransfer taxesAttorney fees

• Appraisal costs Home inspectionsCosts of reporting creditTransfer taxesAttorney fees

Consulting with a financial advisor will help you figure out how best to handle your mortgage closing.

The most crucial tax day is April 15, which is the due date for individual tax returns. Due to the Coronavirus pandemic in 2020, the filing date for individual taxes was extended to July 15. If you filed an extension, your taxes won't be due until October 15.

Rental yield is the amount of profit you make from your rental units. The calculation of rental yield also allows you to calculate the return on your rental property investment.

Mynd is the all-in-one platform and trusted partner for growth-minded investors interested in single-family rental properties. Powered by technology and trusted local experts, we educate and empower believers in this asset class to build wealth remotely and confidently.

At Mynd, we believe we're the best property management company for residential real estate investors. 

• Best-in-class technology: The Mynd investor portal, makes it seamless for investors to approve service requests, communicate with their property manager, and monitor performance metrics in real time. With Mynd, investors can say goodbye to spreadsheets: the Mynd app provides powerful insights and reporting on each property’s cash flow, YTD earnings, service requests, new leases or renewals, and more. Accessible on both mobile and desktop, Mynd provides visibility on a property or an entire portfolio all-in-one place.

• Upfront, flat-fee pricing: We charge simple, flat, and monthly rates rather than an overall percentage of rent. Whether a property is leased for $2,000/month or $5,000/month, it’s the same monthly price to select Mynd as your property manager. 

• Comprehensive nationwide coverage: With coast-to-coast coverage and local property management experts in 25+ markets (incl. Atlanta, Houston, Dallas, Las Vegas, Charlotte, Phoenix, etc.), we support investors with geographically diversified portfolios. Whether all properties are in one location or multiple spread across different cities throughout the U.S. We support investors by keeping all their properties under one property management company to realize the benefits of passive income.

• Rental income protections: As an industry-leading property management company, we offer protections that guarantee an investor’s income. When Mynd places residents on behalf of an investor, we guarantee up to $5,000 in loss of rental income. If a resident violates their lease agreement and eviction is needed, Mynd will help cover court costs and legal fees up to $5,000. 

Mynd is more than just a typical property management company. For real estate investors who want to continue to build wealth through single-family rentals, Mynd is the all-in-one solution that makes investing easy. We support the end-to-end journey of investing in single-family rentals, so investors can buy, finance, manage, insure, or sell their properties… all in one place.