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12 Feb

Thoughts on Minimizing Income Tax due on Your Rental Properties

Income Tax

Posted by: Garth Chapman

Couples who own rental properties will often have different income levels which can result in sometimes vastly different income tax rates. So when reporting the Net Rent Income on your tax return most will simply split the Net Income 50/50 as that is the usual ownership split. But are there ways to split the income in order to have more of the income in the hands of the spouse with the lower tax rate, and thereby save money? I think there are.

One very simple method of achieving some savings is to pay from the gross rents received a Property Management fee to the person who manages or does the larger share of the property management. I find that this is often the person with the lower income, as often they simply have more time to devote to looking after the rental properties.

Another method is to have an ownership agreement in place describing a beneficial ownership split other than the usual 50/50. Some investors have different percentages of ownership for Appreciation vs. Income & Expenses. Properly documented, this is fine.

Disclaimer: I am not a tax professional. So, as always, talk with your Tax Preparation professional to determine what will and won’t work in your unique case.