While nobody particularly likes to talk about taxes, it’s an important topic for Phoenix rental property owners.
Phoenix is a popular city for real estate investors due to its favorable tax rates, affordable housing, and thriving real estate market. If you’ve recently purchased a rental property in Phoenix, you may be wondering how much tax you’ll owe to the city.
Figuring out taxes on your own, especially as a new rental property owner, can be overwhelming and confusing. From shuffling through different forms to keeping track of expenses, you could end up overpaying in taxes if you aren’t careful.
We’ve seen many first-time landlords make mistakes when filing taxes on their Phoenix rental property income. To keep you from making these costly mistakes, make sure to read this entire article. You’ll learn Phoenix’s rental property tax rate, how to file taxes, and if you even have to pay the county tax.
Rental Property Tax Rate in Phoenix
There is no county or state tax in Arizona when it comes to residential rental properties. Each city sets its own tax rate.
Phoenix’s residential rental property tax is just 2.3%.
What does this city tax apply to for your rental property?
The total gross income that you receive from your tenant is subject to this tax rate. This includes rental income, deposits, pet fees, and money awarded by the court in the case of an eviction.
Landlords may choose to include this tax in the rental price rather than charge it separately.
For example, if the monthly rent is $1,500 with the tax included, the landlord will receive $1,465.50 and pay $34.50 in city tax each month.
Who Pays the Rental Property City Tax in Phoenix?
You may be surprised to learn that not every landlord with a rental property will owe Phoenix the city tax.
Only real estate investors with three or more residential rental properties in the state of Arizona must pay the city tax. Rental property owners with just one or two properties are not subject to paying this tax.
Additionally, only property owners with three or more properties who lease their properties for more than 31 days will pay the 2.3% tax monthly. Otherwise, they are subject to a hotel tax.
It’s also important to note that this tax is just for residential rental properties in Phoenix. These types of properties include single-family homes, condominiums, townhomes, small apartments, manufactured homes, and trailers or mobile homes.
What If You Have a Property Manager in Phoenix?
There is an additional detail to mention about Phoenix’s rental property tax. While rental property owners with less than three properties are not subject to the tax, the tax will be imposed if they are managed by a property manager.
However, the tax is not imposed on the rental owner, but on the property management company.
How to Pay Phoenix Residential Rental Property Tax
Before you begin renting your Phoenix rental property, you must complete the Transaction Privilege Tax (TPT) form and submit it to the County Assessor.
The city of Phoenix will officially recognize your rental properties as taxable income-producing entities when you file this form.
The TPT form is for independent real estate investors who do not have employees working for them on the properties. Note that this does not include contractors and 1099 services.
When Do I Have to Pay the Phoenix Rental Property Tax?
The city tax on your Phoenix residential rental property is due on the 20th of the month following when you filed. So, you will owe the 2.3% tax on your rental income each month.
Rental Property Tax Deductions and Write-Offs to Take Advantage Of
Fortunately, there are favorable tax deductions and write-offs for property investors that own rental properties. When it comes to filing your annual tax return and claiming your rental income for the year, you can take advantage of the following deductions and write-offs.
The city tax that Phoenix imposes on rental property owners with more than three residential rentals in Arizona can actually be deducted from your annual tax return. Therefore, this could lower your federal income tax bracket.
If you pay for utilities in your rental property, you can write this off as an expense. Note that this is only possible when the meters are independent of each other if you own a multifamily complex.
Maintenance and Repairs
Independent landlords that take care of maintenance and repairs can write off expenses for supplies and hired labor. This means door handle replacements, plumbing equipment, and any other supplies needed to take care of a tenant’s maintenance request.
Travel To and From the Property
Driving to and from your residential rental property in Phoenix for repairs or to check on a tenant can be time-consuming. But it can also be a tax write-off!
When you track your mileage, you can receive a deduction of $0.65 per mile in 2023. Whenever you drive somewhere related to managing your rental property, be sure to track those miles.
There is a standard tax deduction for rental property owners for depreciation of the property. The IRS allows 27.5 years of depreciation for your property.
To explain it simply, you will receive a tax deduction each year for 27.5 years. To calculate the depreciation amount, deduct the value of the land from the price you paid for the property. Take the sum and divide it by 27.5. This is the amount of depreciation you can deduct each year from your tax return.
If you employ professional services such as a contractor, lawyer, accountant, or property manager, you can write off their fees when filing your annual tax return.
Property Management Company in Phoenix, AZ
At Brewer & Stratton Property Management, Phoenix rental property owners don’t have to worry about finding the correct tax forms and paying the city tax each month. We handle it all for you!
Our professional team at Brewer & Stratton doesn’t just organize and file your taxes, but we also fully manage your Phoenix rental properties. From tenant acquisition to maintenance and repair coordination to detailed accounting, your property is in excellent hands with our team.
Wondering how much rent you should be getting for your Phoenix rental property? Try our free rental analysis today!
If you found this article interesting, you will find our blog, Do Accidental Landlords in Phoenix Need an LLC? 5 Benefits of Forming One Today, helpful to read next.