GM of San Diego

Staff Writer, Stacker

Co-founder & CEO

Landlords who are prepared for tax season will find tax time a lot easier and save money in the process. Get the Landlord's 2023 Tax Prep Guide to learn more.

Spring into Tax Season: The Ultimate 2023 Tax Prep Guide for Landlords

As we countdown the days until warmer weather arrives there is a less exciting prospect on the horizon that comes with spring: the federal tax deadline. 

There’s a lot to get your head around as a landlord when it comes to tax season, but those who are prepared and stay on top of their game will find it a lot easier — and save money in the process. 

Disclaimer: We don’t enjoy using the word ‘landlord’. We prefer to refer to members in our network as homeowners, not landlords, since we’re on a mission to upend and redefine the traditional landlord-tenant relationship. That said, there’s a big difference between residential ‘homeowners’ and ‘landlords’ when it comes to tax matters, so in some instances we have had to stick to the old term for owners of rental homes. This article helps to highlight things that rental home owners should prepare for, but should not be considered financial advice. Please speak to an accountant or financial advisor to discuss your individual situation and eligibility before filing any tax documentation. 

New and noteworthy tax changes for landlords

Each year brings new bills and regulations, which means changes to taxation rules. As the owner of a long-term rental property, here are some changes that are worth getting across to prepare for the 2023 tax season:

Federal income tax brackets are changing for 2023

New initiatives bring tax incentives for energy-efficient homes

The IRS has tax relief for disaster situations

1. Federal income tax brackets are changing for 2023

In 2023, federal income tax brackets are changing to account for high rates of inflation. While we can’t provide personalized advice for your exact tax situation, if you want to know how the changes will impact your return, we have prepared an article on the new rates here. 

2. New initiatives bring tax incentives for energy-efficient homes

With new green initiatives and Residential Clean Energy tax credits announced last year, many homeowners are wondering what extra deductions they could claim for energy-efficient improvements to a rental property. The bad news is that these credits don’t apply to rental homes. 

That said, if you are making improvements to the home or upgrading the appliances, you can still qualify for depreciation on these upgrades and/or receive local state incentives — but not the federal tax credits. If you use the home for part of the year, you can claim partial credit too (e.g. if you live in the home for half of the year, you can claim 50% of the tax credit). 

3. The IRS has tax relief for disaster situations

2022 was a year of wild weather and the IRS has tax relief provisions in place for homeowners with property in areas that are hit by disaster, such as a hurricane, tornado, flooding, earthquake, landslide, or wildfire. 

If you have faced a sudden damage (not deterioration over time, even if due to weather) to your rental home, the loss should be tax deductible. How much and what you can claim depends on how much of the home was destroyed during the incident and how much was covered by insurance claims. You can only claim the loss (or partial loss) of the property, not the cost to repair, replace, or clean up any damage. The cost of restoring the home is considered capital improvement and falls under depreciation. You can learn more about tax relief for disasters on the IRS website or this handy legal guide from NOLO. 

Preparing for your tax return when you own a rental property

Tax season has officially started, with the 2023 filing deadline set at Tuesday, April 18. If you request an extension, you will have until Monday October 16, 2023 to file (but your request must be submitted by the April deadline).  

It’s always a good idea to leave tax filing to an accountant, who can help maximize your tax return and reduce your liability each year. But whether you go it alone or enlist professional help, you’ll still need to be prepared and keep accurate records of everything relating to your rental property. 

Here’s 5 steps to help you prepare for filing before the deadline — and get a head start on your bookkeeping for next year:

Determine if you qualify for ‘active participation’ or ‘passive activity’

Tax prep step #1: Determine if you qualify for ‘active participation’ or ‘passive activity’

You may have heard that there are tax benefits to taking a DIY approach to rental property. This is true, if you are self-managing the home, you may qualify as having ‘materially participated’ as a real estate professional. This allows your rental property involvement to receive non-passive tax treatment. Non-passive income means you can use any losses to offset other types of income, and you won't be subject to the 3.8% tax that applies to net investment income.

But to benefit from this approach, you need to show that you have spent 500 hours or more managing your property. This route isn’t for homeowners looking for passive income to build their wealth. Even if you hire an individual to help, you will need to consider extra legal and tax implications such as payroll. 

If you’re not considered a real estate professional, owning a rental home is considered a 

‘passive activity’ by the IRS. You won’t miss out on tax deductions, but any losses will carry forward until you generate passive income or sell the home.

There is a middle ground between passive income and becoming a real estate professional is known as “active participation”. The IRS takes into account major decisions about your investment, such as approving new residents and even the work that goes into appointing a property management company. If you actively participate in these decisions, you could deduct some (up to $25,000) of your passive losses, even if a company like Belong handles all the hard work. There are income thresholds and caps on deductions here so you will need to speak to an accountant to determine if you qualify for this. 

Tax prep step #2: Get your documents in order

Regardless of your level of participation, the single-most important part of tax preparation is documentation. You’ll need records of everything relevant to your rental home. 

Records of any income earned from the property including rent, any late fees paid and interest earned

A mortgage statement showing how much interest you paid

Receipts for any expenses that the tenant has not covered, such as repairs and maintenance to the home

Records and expenses for professional services hired related to advising on your property, including accounting, and legal fees

Records and expenses related to management of your property, either itemized as a self-managing landlord or the expenses of service providers such as Belong or a property management company

The cost of any capital improvements made to the home

Records of property taxes paid on the home

Records and cost of insurance premiums held for the home

If your home is loved by Belong, you’ll always have full visibility over your income and expenses through the Belong app. Each year we'll send you a statement for you or your accountant to work through, plus your concierge is on hand to assist if you need to clarify any information around earnings or charges. And did we mention that Belong fees are tax deductible?

Tax prep step #3: Understand and report your income 

If you're a sole proprietor or a single-member LLC, you'll report your rental income and expenses on Schedule E of your personal tax return (Form 1040). If you're an LLC or a partnership, you'll file a separate tax return for your business, and your rental income and expenses will be reported on that return.

Most individual taxpayers report on a cash-basis, which means you will need to report rental income to the IRS for the year when you receive it, not when it was earned. So for example, when it hits your bank account. 

If your home is looked after by Belong, you will receive guaranteed rental income and may receive rent in advance, either monthly or an entire year upfront, regardless of when your residents have paid. In these instances, you will need to declare the income when you received it, even though the rent is covering an advanced period that won’t have been completed at the time of filing. 

Other types of income you may need to report:

If your tenant pays you for any of your expenses, the payments are counted toward rental income. If they are eligible expenses, you can include the amount you paid as deductions too.

If your tenant pays you to cancel a lease, the amount you receive is considered rent. Include the payment in your rental income in the year you receive it regardless of your method of accounting.

If your tenant pays with something other than money, you need to record the fair market value as income. This would only apply to homeowners who self-manage a property and have a direct agreement with their resident, such as providing two weeks rent in exchange for redoing the gardens or replacing a fence. 

If you receive a security deposit payment, rather than returning it at the end of a lease. Sometimes security deposits are used in lieu of a final rent payment or to cover breaches and damage to the home. Include this as income when it’s received, but don’t include a security deposit if you’re holding it with the intention of returning it to a tenant at the end of their lease. 

Spring into Tax Season: The Ultimate 2023 Tax Prep Guide for Landlords to Maximize Deductions

There's a big difference between investing in commercial real estate vs residential real estate, learn what would best suit your portfolio and investment style

Is it Better to Invest in Residential or Commercial Real Estate?

Is it better to invest in a commercial or residential property? The answer isn’t as straightforward as choosing to rent out a business or home. Each type of property investment comes with its own risks, tenancy options, financing and tax implications to consider.

What is “better” ultimately depends on your financial situation and what kind of investments suit your portfolio. In this article, we’ll take a look at the difference between investing in commercial real estate vs residential real estate so you can consider what’s right for you. 

Note: This article is for personal education purposes only. Always speak to a financial advisor or tax professional to get personalized advice for your situation before making any decisions about where to invest your money. 

Investing in commercial vs residential real estate — what’s the difference?

Residential real estate is any property or unit used as a home, such as single-family rentals, condos, or apartments. It requires purchasing (or inheriting) a home and then renting it for monthly income, usually under a lease agreement of around 12 months. This is the preferred type of investment for most individuals because obtaining finance to buy an investment home is fairly straightforward, with a lot less red tape to contend with than commercial finance. Most houses also appreciate well over time and it even gives you the option of returning to the home to live in yourself one day. 

In a recent article, Roofstock reported that single-family rentals (SFRs) have provided nearly identical returns to the stock market — but with far less volatility. This makes owning a rental property an attractive investment option to build or diversify your portfolio. 

Investing in residential real estate might suit you if:

You are new to real estate investing or are looking for a stable, less complex investment type

You want flexibility, with an option to adjust rental prices and sell the home or return to live in it yourself one day 

You want control over your asset, with the option to manage the property yourself or choose a company you trust to work with, such as Belong or a property management company

You want to take advantage of the tax benefits for landlords, such as deductions for expenses and mortgage interest or deferring capital gains

Residential real estate investing is also a great option for people who want to own property, but can’t afford home ownership in the area they want to live. Known as ‘rentvesting’, it involves buying an investment property in a more affordable, up-and-coming area and renting it out, while continuing to rent your primary residence in your preferred location or home type. 

In commercial real estate, the tenants renting from you are using the space to conduct business. The leases are much longer (around 5-10 years is common) and instead of attracting a monthly rate based on how many rooms the property offers, they are typically quoted as a yearly rate based on the square footage available to the business. The workload of managing a commercial property will vary greatly depending on the type of space and leasing business/es. For example the tenants' needs in an office space will differ to a business operating a restaurant or even a hotel, which is a 24/7 business. 

Investing in commercial properties is usually recommended to more experienced investors. This is because the process is complex, it takes a lot of capital, and there are more hoops to jump through to get finance. Commercial real estate is often owned by other corporations or a group of investors, but it is possible for individuals to own commercial real estate for investment purposes.

Investing in commercial real estate might suit you if:

You are an experienced real estate investor looking for a long-term investment option with higher risk and higher reward potential

You are a high-net worth individual or are working with a group of investors, since investing in commercial real estate requires more capital than residential real estate

You can afford the higher maintenance and running costs of operating a commercial property, especially if a change in tenants requires reconfiguring the space

You want to take advantage of tax benefits such as depreciation, mortgage interest deductions, and 1031 exchanges

You have a good team of professionals to guide you through the legalities and regulations of investing in commercial real estate

A popular alternative for individuals interested in commercial real estate is to buy shares in a publicly traded Real Estate Investment Trust (REIT). These companies own, operate or finance the properties to generate income on behalf of investors, so you won’t need the same specialist expertise — but you also won’t own the property or benefit from capital appreciation. 

How investing in residential real estate makes money

Investing in residential real estate can make money in three ways:

Appreciation of the property over time or ‘flipping’ the home after it’s been renovated

Tax deductions and benefits such as depreciation and deductions for mortgage interest and expenses

For most investors, positive cash flow is the goal — owning a home that earns more than it costs to own and operate. How much you earn on a rental after expenses is known as ‘net operating income’ or NOI. This involves taking your gross rental income and subtracting your gross operating expenses and debt liabilities. You can learn more about how to do an accurate cash flow analysis on a rental property here.  

The alternative is negative cash flow on a rental property means that the home doesn’t produce enough cash to cover the cost of the asset. While the name makes it sound, well, negative — this can sometimes be a strategic move. Known as ‘negative gearing’, some real estate investors will take on a property knowing that the rental income won’t cover costs of expenses in the short term. This is because the asset will appreciate and may produce more money in the long term. Negative gearing can also reduce tax liability, with losses claimed against other sources of income.

This is a riskier strategy than positive cash flow, as it requires investing more of your own money for the larger payout in the end. There are also capital gains considerations on the profits if you sell the property without reinvesting the money into another similar home. 

How investing in commercial real estate makes money

If you are a direct investor in commercial real estate — that is, owning the physical property — you can also make money in the same three ways, but on a different scale:

Through annual rent from your commercial tenants, with a steady income on long leasing arrangements

Through appreciation of the property as its value increases over time, delivering capital gains when sold

By reducing your tax liability, as commercial real estate has similar tax benefits to residential such as depreciation, mortgage interest deductions and 1031 exchanges

If you choose to invest in a Real Estate Investment Trust (REIT), the above won’t apply. That is because you will not own any commercial real estate as an individual, nor can you access capital appreciation or tax strategies that real estate ownership attracts.

There are three types of REITs for investors:

Equity REITS: Companies that own and manage real estate, generating income through rent.

Mortgage REITS: Lenders that finance real estate projects through mortgages and loans, generating income from interest.

Hybrid REITS: Companies that offer a mix of both equity and mortgage REITS.

The main benefit of investing in an REIT is that shares remain liquid as they don’t rely on you owning, maintaining and buying/selling a physical property. But that benefit can also be a drawback if you’re looking to take advantage of the benefits of real estate investing. If you invest in property, you can access monthly rental income, you’ll own an appreciating asset that can be sold down the track, and you can take advantage of tax strategies to reduce your tax liability each year.

How Belong is simplifying residential real estate investing

If you’re considering an REIT over investing in real estate because you’re put off by the amount of work it takes to manage and maintain a property, you’re not alone. But there’s also another option to consider: letting Belong take care of everything.

Belong wants to bring residential real estate investment back into the hands of individual investors, helping homeowners to achieve financial freedom. We do this by making the process of managing a rental home and achieving passive income much easier, where homeowners don’t have to lift a finger. Our homeowners even get asset management advice, helping to optimize your investments and get the highest ROI. 

So whether you’re ready to try your hand at investing in residential real estate or are looking for better ways to optimize your rental’s cash flow, learn more about Belong’s new approach  and see if your home is eligible here.

Where are the most recession-proof housing markets? We take a look at the data for 2023 and how to protect your real estate investment on the rental market.

Where are the Most Recession-Proof Housing Markets in 2023?

Recessions are unpredictable. In fact, experts can’t seem to agree on whether the US is or isn’t headed for recession in 2023. This uncertainty itself can bring instability to the real estate market, with many people waiting to see what happens before they put their money in a home. 

In the past, recessions have often triggered dramatic drops in housing prices, which can be good news for homebuyers, but bad news for homeowners, mortgage holders and anyone without good job security. 

Thankfully the housing market looks very different now than it did in 2008, when the Great Recession hit. There’s been a shift in supply/demand and more homeowners have had an opportunity to build equity in their homes off the back of historically low interest rates. This has made the market less fragile and many areas have even held quite strong despite rising interest rates. 

But where are the strongest markets in the US? Which states will be most resistant to huge drops or deemed to be “recession-proof” housing markets? While no one can be certain, many real estate analysts have weighed in on this topic recently. In this article, we’ll give you a brief overview of some of this data. 

Which housing markets are at risk during a recession?

Recession or not, we already know that the housing market shifted in 2022 from years prior. Interest rates spiked from historic lows and after a pandemic fueled buying frenzy in regional markets, prices began to slow and settle. Supply is starting to open up as homes stay on the market longer. 

Real estate researchers at Redfin noted that some of the pandemic’s hottest markets are the ones most likely to experience a downturn. After outpacing other markets in price growth and migration, they are now at risk of losing the value gained since 2020. 

Redfin predicts the top 10 housing markets most at risk of a downturn in 2023 are:

Most of these markets are now facing either unaffordability with interest rates rising on top of high prices, or people returning back to other regions after moving during the pandemic. 

Which housing markets are tipped to be the most resilient in a recession? 

The same Redfin data lists markets that are still affordable in Rust Belt metropolitan areas as the most resilient housing markets. 

Redfin predicts the top 10 most resilient housing markets of 2023 will be:

This list is based on a risk assessment of the markets with the lowest chance of a housing downfall if the US enters a recession. Factors influencing these scores include lower price volatility, low debt-to-income ratio and affordable housing. When houses remain affordable, they are more likely to attract buyers and investors. 

Boston is a notable outlier on this list, however price growth didn’t hit this area quite as hard when many migrated out during the pandemic, pushing up prices in other regions. 

Single family homes are resilient real estate assets

Housing markets play a big role in the price and value of homes, but the type of home plays a part too. There’s no such thing as a “recession-proof investment”, but in terms of real estate, single family homes can hold tremendous value. 

Large single-family homes, particularly in spread-out neighborhoods, typically remain in high demand and are more likely to hold their value in a recession (or any kind of economic downturn). 

Single-family rentals can make for resilient investments too. In a recent article, Roofstock reported that single-family rentals (SFRs) have provided nearly identical returns to the stock market — but with far less volatility. This makes owning a single family home an attractive investment option to build or diversify your portfolio. 

If you own a single-family home in a market affected by a downturn, you won’t get much in the way of appreciation on your home until things bounce back. However, if there’s scarcity for single-family homes and you can offer good space in a nice neighborhood, it’s likely that demand will remain steady for your home on the rental market and price decreases won’t hit as hard as the apartment market.  

In fact, when homeownership declines, people are likely to stay renting for longer, opting for a single-family home with more space to stay long-term and even grow their family, rather than choosing a cramped apartment. 

Protecting your real estate investment during a recession

There are two key ways to protect yourself during a recession: 

1. Have a stable source of income (positive cash flow)

When interest rates rise and the risk of residents falling behind in rent increases, this might bring little peace of mind to owners of rental properties.

Belong is turning this around and making it easier for homeowners to protect their single-family home investments during a recession. For starters, we’ll ensure your rental income is stable and predictable, by optimizing the rental price for your market and guaranteeing rent every month. Regardless of when your residents pay, you’ll always know exactly how much income will be coming in and when. 

When it comes to debt, you’ll always know where you stand too. Unlike traditional property managers, Belong never charges hidden fees for the essentials in taking care of your home. If unexpected costs do arise, such as maintenance or repairs, there’s no need to max out your credit cards. All Belong homeowners are pre-approved for our innovative Split It financing option. This allows you to access our extensive vendor network and spread the cost over the term of your lease agreement, keeping your cash flow positive and debt down. 

Discover Belong PRO, the best alternative to Property Management in Seattle, Redmond, Oakland, and many more cities across California, Florida and Washington State.

These regular and seasonal maintenance jobs are key to keeping your rental property profitable and in good shape all year.

The Annual Maintenance Checklist for Rental Homes in Florida

The Florida rental market has heated up like no other, making places like Miami and Tampa ideal locations to own an investment property. But a home in disrepair isn’t going to attract good residents or the right price for the market. Regular maintenance on a rental is key to keeping the home profitable and in good shape — identifying any issues or necessary repairs before they become costly headaches. 

While Florida really only experiences two seasons a year (hot and less hot), it’s not immune to wild weather. This annual maintenance calendar will give you an idea of the kind of repair, prevention and maintenance items you should cross off your list every season for a rental home in the Sunshine State. Some of these items you can ask your residents to manage, but some you will need to check for yourself in annual or quarterly inspections. Or, if your home is looked after by Belong, we can handle the lot — from speaking with the residents about issues to making repairs with our extensive network of professional contractors. 

Homeowners should also be aware of their obligations under Florida’s landlord-tenant statute to keep the property in good repair and ensure the home is habitable. If you fail to do so, your resident has the right to withhold rent, provided they issue you with a notice of their intent. You will be given seven-days notice to correct the defect/s and the resident can’t be forced to pay rent or threatened with eviction during this period. 

Spring Maintenance Checklist for Florida Rental Homes

Spring is the end of the dry season in Florida, which makes it the perfect time to tackle any maintenance issues and inspect for any leaks or cracks before the wet season begins. Servicing your HVAC or air conditioning unit and cleaning out filters is another must, before the mercury rises and contractors get busier (and more expensive!). 

It’s also a good time to do an annual inspection of smoke alarms, plus any fire extinguishers, CO detectors, and sprinklers to make sure they are working properly. 

Check the HVAC or air conditioning unit and clean filters before summer hits 

Inspect and test any fire safety systems such as fire extinguishers, CO detectors and sprinklers 

Mow the laws and remove any weeds as they start to appear

For homes with pools, have the water checked and cleaned to prepare for summer

Hose down any decks — if they need maintenance, now is a good time to reseal and treat for rot 

Check for leaks in the ceiling or any signs of water damage to repair before summer and fall rains set in and problems deepen 

Summer Maintenance for Florida Rental Homes

May to October is the wet season in Florida, making summer hot and humid. When the moisture and humidity rises, so too does the mold so be sure to make sure there’s no damp spots or moisture damage in the home and that rooms are being kept well ventilated. You can recommend that residents use basic moisture absorbers (such as DampRid) in dark areas that attract mold, like closets and laundry rooms.

If your home is prone to infestation, or your residents have concerns, now is the time to inspect for insects and rodents after the spring breeding season. 

Florida is also prone to severe storms and hurricanes, with the season peaking around August - September. You can check your address on FEMA’s Flood Map to find your flood zone category and risk of property damage during summer and fall. If you are at risk, check your insurance coverage and look at the National Flood Insurance Program. 

If your home has hurricane shutters installed, be sure to check their condition and make sure any electrical systems are functioning or hand-cranks are moving easily. If you don’t have any installed, now would be a great time to consider them to protect windows from flying debris. They also offer great insulation and protection from burglaries for your residents.  

Inspect and control any pest infestations such as insects and rodents

Check any supplied appliances such as refrigerators and washing machines

Check insurance coverage before hurricanes and storms set in 

Check property for any damage or loose fittings that could become an issue during storm season

Fall Maintenance for Florida Rental Homes

If your rental home has a lawn and yard, the big dose of sun and rain may have encouraged it to get a little unruly. Your trees may have also been damaged during summer storms. Fall in Florida is a good time to give gardens some love to ensure you maintain curb appeal and function. 

While you won’t see the traditional colors of fall the way you would in Vermont, there are Floridian trees that will drop their leaves and clog your gutters. If your home has one, make sure gutters are cleared as clogs can saturate your roof and cause leaks. 

Inspect roof and gutters, clearing out any debris 

Check bathroom caulk and grout for any potential issues and leaks before winter

Check garbage disposals as these get frequently clogged and lead to repair issues

Check insulation and drafts around windows and doors to fix before winter

Winter Maintenance Checklist for Florida Rental Homes

No need to worry about snow plows or frosty pipes, winters in Florida are the mildest in the US. However, as a homeowner you still have a responsibility to your residents to provide heat, especially hot water. Don’t neglect the water heater in your rental home — a yearly flush can prevent pipes from bursting and let you identify problems or leaks before they get worse. No hot running water gives residents cause to stop paying rent, an outcome far more expensive than maintenance. 

Florida rental owners take note: These regular and seasonal maintenance jobs are key to keeping your rental property profitable and in good shape all year.

Melanie Kershaw

Mel Kershaw is a Content Lead at Belong. With an extensive background working with technology companies including Eventbrite and Yelp, she’s always looking for ways to create educational and informative articles that simplifies tech and solves problems for her audience.

Brett Jaffe

Harrison Kelly

Dom Difurio

Annalise Mantz

Ale Resnik

Brett Jaffe

Harrison Kelly

Dom Difurio

Annalise Mantz

Ale Resnik