How Should a Married Couple Treat Rental Property?

A rental property can bring advantages and disadvantages.

A rental property can bring advantages and disadvantages.

A rental property can provide you with a method to receive hundreds or thousands of additional income each month. However, this property can represent many legal and financial obligations to a married couple. Learning how to handle the property and the income that comes with it can make the property an asset rather than a liability.

Community Property States

Determining the legal implications of the rental property is an important part of the process as you learn how to handle the property. If you purchased the property after your marriage, the property will likely be deemed community property. Even if you and your spouse agree to a separate arrangement, the state can hold you both liable for taxes and legal problems that arise from the property if you live in a community property state. Additionally, the income that derives from the property will also be considered community property. Value that is added to the property will also belong to both spouses upon dissolution of the marriage.

Separate Property States

If you purchased the rental property in a separate property state with separate income or before your marriage in a community property state, you alone will be the legal owner. This rule also stands if the property was acquired as a gift or inheritance. The income that derives from the property will belong only to the person who purchased the property. However, the income from separate property can become community property if funds are commingled, such as when the rental income is deposited into a joint checking account.

Business Considerations

The benefit of having a rental property is the ability to make additional income off the property. As such, the property should be treated like a business. Carry insurance on the property that will cover a loss in income in the event that the property becomes inhabitable, such as if there is a flood or fire. . Your state may require you to have a license if you rent out a property. Ensure that you complete repairs in a timely manner to keep the tenant happy.

Tax Reporting

Rental properties have many tax implications. Generally, you must report the amount of income you receive from the rental property each year. You may deduct expenses that are related to the upkeep of the rental property and acquiring tenants, such as maintenance, insurance, taxes, advertising, legal fees and management fees. You may also deduct travel expenses that you incur to inspect the property. Depreciation is another expense that you can deduct from the rental income.

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