If you rent out land or buildings and make a profit, you are required to file a tax return. However, you may wonder what is included in income and expenses and when to recognize the profit. In this guide, we will cover the basics of calculating real estate income and taxes.
What is real estate income?
In simple terms, it refers to the profit earned from renting out real estate.
For example, if you operate a paid parking lot where services such as vehicle entry and exit management are provided by a staff member, this would not be considered real estate income. Instead, depending on the scale, it may be classified as business income or miscellaneous income, so please take note.
What is included in income, and when should it be recognized?
Income from real estate typically includes items such as land rent, property rent, and renewal fees.
- For land rent and property rent, income is generally recognized on the payment date as stipulated in the contract.
- For renewal fees, the income is recognized when the contract is renewed.
What kinds of expenses are deductible?
Expenses related to real estate income include items such as property taxes, depreciation expenses, and repair costs for the rented property. However, for certain other expenses, such as salary payments to a spouse or other family members living in the same household as the Blue Return filer, the treatment may vary depending on whether the rental activity is conducted on a business scale.
For example:
- If you are renting out 5 or more houses or 10 or more apartment units, the activity is considered a business.
- If the activity does not meet this scale, certain expenses may not be deductible as business expenses.
How is the tax amount calculated?
Tax on real estate income is calculated by combining it with other qualified income and applying a rate based on the total amount.
If you have any questions, please feel free to reach out.
For more information about the prices of the services we offer, please refer to this article.
