In the District of Columbia (DC), rental income is taxed in the same way as other types of income. As a result, if you own rental property in DC, you are required to declare and pay taxes on the income you get. This page will provide a thorough explanation of DC’s rental income tax laws as well as address some associated issues.
Rental income is subject to the same tax rates as other types of income in DC since it is treated as ordinary income. The amount of taxable income you earn determines your tax rate. For instance, the tax rate in 2021 is 6% for taxable income between $10,000 and $40,000 and 7% for income between $40,000 and $60,000. As taxable income increases, the tax rate also rises.
Contrary to wages and salaries, rental income is not subject to Social Security and Medicare taxes. However, you can be liable for self-employment tax if you’re a landlord and you actively manage your rental property. Your net self-employment income—which includes rental revenue as well as other income from self-employment activities—is the basis for calculating this tax.
In order to create a S Corporation (S Corp) in Washington, DC, landlords must do the following actions:
2. Request an incorporation certificate from the DCRA, the DC Department of Consumer and Regulatory Affairs. Online or in person applications are accepted for this credential.
4. Submit an application for any required business licenses and permissions to the DCRA and other pertinent organizations.
Articles of Incorporation: What are they?
A corporation’s existence is formally declared via its articles of incorporation. The name of the corporation, its purpose, the number of shares it is permitted to issue, and the names and addresses of the founding directors must all be included in the articles of incorporation in DC. A Certificate of Incorporation cannot be obtained without the articles being submitted to the DCRA.
In a Sole Proprietorship, the business owner is liable for all debts and obligations of the company on a personal level. In other words, the owner and the company are treated equally under the law. The owner is in charge of utilizing Schedule C on their personal tax return to record the business’s earnings and outlays. This means that on the owner’s personal tax return, rental income received by a sole proprietor is taxed as ordinary income.
In conclusion, rental income is taxable as regular income in DC. The amount of taxable income a landlord earns determines the tax rate. You must take specific actions, such as requesting a Certificate of Incorporation from the DCRA and a TIN from the IRS, in order to establish a S Corp in Washington, DC. Additionally, articles of incorporation must be submitted to the DCRA. The owner of a sole proprietorship is personally liable for all debts and obligations incurred by the company, and rental income produced by a sole proprietor is taxed as ordinary income on the owner’s personal tax return.