When doing your taxes this year pay special attention to the Schedule E form for 2011. There have been several changes related to real estate investors and landlords designed to clarify funds and how the are reported.
In a recent article released by the American Apartment Owners Association, the Treasury Inspector General for Tax Administration issued a report in December 2010 recommending increased scrutiny of tax returns with rental real estate activity, estimating that the change could recover over $27 million in lost revenue over 5 years.
The audit was conducted because of a 2008 Government Accountability Office report that over half of the individual taxpayers that reported rental real estate activity misreported that activity, resulting in a shortfall of $12.4 billion in 2001 alone, according to San Francisco Bay Area tax audit experts, ProActive Tax Solutions.
The article does not clarify if this is specific to the California area, but I would assume that even if it is, the rest of the states are soon to follow.
“No matter how honest you are on your taxes, owning rental property is an automatic audit trigger since these reports were issued. Every landlord is that much more likely to be audited,” said Georgia Rogers, President of ProActive Tax Solutions.
The report from the Treasury Inspector General also recommended more careful examination of un-allowed passive losses from prior years, and of people claiming to be real estate professionals. In response, the IRS has changed the Schedule E (the form for real estate income and losses) for tax year 2011. The new forms will require more information about rentals, including the type of property, the number of days it was rented, and any days for personal use.
“These changes will require landlords to be more careful about records and bookkeeping,” according to Rogers.
I hope this helps you to just be aware that there are changes that have been made specifically for us. From what I understand, you have a better chance of getting struck by lightning. However, I think either one would be a bummer. Have a great week and payout will be done on Saturday March 10th so expect your funds by midnight Tuesday.