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.
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.
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.
- Internal Revenue Service: Rental Income and Expenses
- The New York Times: Answers to Your Tax Questions
- Internal Revenue Service: Depreciation of Rental Property
- Alaska Court System: Property and Debt, Civil Rule 26.1 and Discovery
- Law Bob: 29 Mistakes That Can Mess Up Your Estate Plan
- America Institute of CPAs: Community Property Rules and Registered Domestic Partners
- FOX Business: Treat Your Rental Property Like a Business
- Emanuel Law Outlines: Property, Calvin Massey
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