A landlord has to pay all kinds of taxes, including taxes for property and on income. Property taxes are one of those unavoidable expenses that come with owning property here in the US. So yes, those taxes have to be paid.
The property taxes you pay are however considered an expense that is deductible from the income a property produces for income tax purposes. A simple example will help illustrate.
Suppose you own a house that generates $1,000 per month in rent. Total income for the year (assuming no vacancy) would thus be $12,000. Suppose further that your insurance cost $500 per year, mortgage interest for a loan on the property totaled $4,000 (principal payments are not considered expenses), maintenance and repairs totaled $1,250, property management was $1,250 and property taxes were $2,000 for total annual expenses of $9,000. Thus, $12,000 less $9,000 is $3,000. This $3,000 is your income (aka cash flow or profit) for the property for the year. This $3,000 is the amount used to calculate your income tax.
As this example demonstrates, you do not calculate your income tax based on the total amount of rental income. Instead you are allowed to deduct qualified expenses from that income, of which property taxes are one.
There are other deductions such as depreciation, car mileage and office expenses that come with owning real estate which I did not touch on for reasons of simplicity. Taxes can be quite complicated, so please understand that I am only a real estate investor and not a CPA. Consult a trusted, professional adviser for more advice.
Kevin Perk is the founder and publisher of Smarterlandlording.com. He is the author of Advice From Experience To New Real Estate Investors. Subscribe to Smarterlandlording here. Contact Kevin here.
