What tax is owed on rental income in the city of Philadelphia? Do all applicable taxes only apply to net rental income?

Question

I am filing out taxes for my rental property in Philadelphia, PA which I own as an individual. As far as I can tell, all applicable taxes specifically for Philadelphia are the following:

• School Income Tax (SIT)
• Net Profits Tax (NPT)
• Business Income & Receipts Tax (BIRT)

Am I understanding all of these taxes correctly? Do they stack together? Also, are they on net rental income? Since I only started renting it out later in the year, the net (less mortgage interest, insurance, etc...) is actually negative. Does this mean I can simply not file them?

Answer 1

The instructions and links to e-file all of these taxes are available online.

1. The rental portion of School Income tax is modified with this instruction for line 7. I can't tell you under what circumstance a personal rental property would be subject to school income and not to Net Profits Tax, so I assume this language is as a catchall; for some future period when laws are changing; or for specific owner-occupied circumstances (rents out individual rooms or half a duplex) that I don't have experience with. I do the NPT return and put 0 rental income on my School Income. If you otherwise had dividend or interest income you still have to file School Income Tax.

Line 7. Net rental income received from the ownership of real or personal property is taxable unless the income is subject to Philadelphia Business Income & Receipts and/or Net Profits taxes. If this is a net loss, enter "0". For School Income Tax purposes, report the net rental activity from a property which meets all of the following three criteria: 1.It is the principal residence of the owner; 2.It is totally residential; 3.It consists of 3 rental units or less. If the activity does not meet these criteria, you must file Business Income & Receipts and/or Net Profits taxes.

2. Net Profits is pretty straightforward if you're a resident, but I have no experience with the nonresident apportionment calculation (I understand from your other questions that you have mixed residency this year). I just refer to my federal Schedule E profit/loss value for line 1 of worksheet A, and the rest is just copying that number and applying the rate. Given the note below about BIRT, the BIRT exclusions in the NPT calculation are not likely to add up to more than 0. I have filed NPT on years with loss (long vacancy due to repair), but that's because their system expects it each year once started until a terminal return is filed. I don't know if you are bound by the regulations to file a first year loss.

3. If a part year rental is your only business you're likely to be exempted from BIRT:

Beginning in tax year 2016, there is an exemption of the first $100,000 in gross receipts and a proportionate share of net income from the Business Income and Receipts Tax.