Most landlords make mistakes on their income tax

tax_problemA majority - some 53% - of individual landlords make mistakes on their federal income tax when it comes to reporting rental income and expenses, according to a study by the U.S. Government Accountability Office.

That means that out of about 8.9 million individual landlords in the country, nearly 5 million aren't paying the correct tax.

And of those 5 million, fully a quarter paid too much tax and should have had a lower tax bill, the government says.

The agency's figures are based on a comprehensive review of landlords' returns that have recently been audited. While the report doesn't cover state taxes, it seems likely that Massachusetts landlords are making mistakes on their state tax forms as well.

Some 9% of landlords who make mistakes on their federal taxes report over $1,000 more in taxable rental income than they should, according to the study. By contrast, 51% of such landlords underreport their income by more than $1,000, and 6% underreport their income by more than $10,000.

The most common type of error - by far - is in reporting rental expenses. The second most common error is misreporting the amount of rent received. Other common errors are reporting rental income on the wrong part of the return

and misreporting rental-related losses.

As for rental expenses, the government found that about 20% of landlords who made a mistake in this area could have deducted more expenses than they did, and should have had a larger deduction.

Other mistakes include deducting unsubstantiated expenses, improperly deducting personal expenses as rental expenses, miscalculating depreciation, and fully deducting expenses that should have been depreciated.

About 166,000 landlords improperly included the value of the land as part of the depreciable basis in their properties.

As for misreporting the amount of rent received, landlords often make mistakes in how they handle expenses paid by tenants and unreturned security deposits.