could someone kindly point me to some information regarding the business end of rental property (taxes, etc). it will be owner occupied (2 family) if that makes a difference.
TIA
could someone kindly point me to some information regarding the business end of rental property (taxes, etc). it will be owner occupied (2 family) if that makes a difference.
TIA
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Replies
There is no such thing as "owner occupied rental". (expcept for part time personal usage, which a completely different situation)
It sounds you are talking about a duplex with the owner living in one unit and rental the secdon one.
Tax wise the property is split into 2. Easy to do if they are side by side with equal space and separate untilities. A little more complicated otherwise.
For the owner have their share of property taxes and mortgage interest is a sch A deduction.
The rental share goes on sch E where you enter the rental income, interest, insurance, taxes, and repairs. Also you depreciate the value of the structure and improvements.
it's a 2 family, one on 1st floor. one on second.are the tax instructions clear enough (feel stupid asking that)?
bobl Volo, non valeo
Baloney detecter
Yeah, they are pretty straight up. Turbo tax will do it for you. Be sure to keep track of every receipt for every repair and every expense or it will hurt come tax time.
Let the beauty of what you love be what you do. ~ Rumi
thanks
bobl Volo, non valeo
Baloney detecter
"are the tax instructions clear enough"Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, Ha, What you need are the publications, one for rentals and one for depreciation.The basic sch E is not too bad, just have to figure out that you will skip over 3/4 of the stuff that does not apply, such "have you scraficed any tax agents on this property in the last 14 months". But depreciate can be real confusing. One of the things is that you need to split out the value of the improvements from that of the land.I would suggest that in a month or 2 (after they recover from the 15) to visit with a tax pro have then set up the depreciation and also help figure the split between the two units.
thanks
bobl Volo, non valeo
Baloney detecter
I did this once for a short period and it's not that tough. Anything done to the tennant unit is a deductable repair. Anything done to the common areas is deductable at 50%. Depreciation is 50%.
In my opinion this is a great way to get started in the business and learn the ropes while saving yourself a rent payment. Really great for young couples. I have advised many young couples though the years to do this and when they move on to a house they still have a rental. If they are handy they can fix up the unit they are living in and at some point move into the other and do the same. This way they end up with two nice units with increased value and rents. Interestingly enough when I lived in mine the repairs always seemed to happen to the tennants apartments. :-) DanT
Bill , it seems Ive been disagreeing with you lately and I dont like it at all.
"There is no such thing as "owner occupied rental". (expcept for part time personal usage, which a completely different situation)"
Any set of rentals occupied by the owner getting paid as a manager in a corporation is indeed owner occupied. Motels are owner occupied all across the country. Hotels too> ! I know a couple of couples that own big sets of apartments that have a managers unit.
Now that is set up , its all tax deductable . We will roll on the whole deal with Uncle Sam paying the owner /managers an income.
Tim
A motel is not a rental activity. It is a business activity.
An apartment building is a business activity too.
Both work off of rental income .
Cabins , cottages, boarding houses, etc. , All pretty much the same if ran through a corp. All of the above have cap rates off rental income.
Storage buildings are the same for that matter , but were talin about the owner living on site. I guess thats possible too.
One of the great things about real estate is that you can alter it to fit your needs what ever they may be. The cost of the living unit for a manager /owner would then be an expense against the business such as our tools and trucks against our profits from construction. It is still a needed vehicle of expense.
Tim
I live in half of a duplex, and I love it. Here in Maryland, even the property tax form has a easy walkthrough for two-family homes. I used TurboTax for fed and state, and that thing just holds your hand and pats you on the head through a very confusing set of regs.
Cross my fingers, knock on wood, so far so good with tenets. Did some short term furisned rentals for a while. My neighbors would put parents there when the came to help out with new babies. Then went to the local hospitals and advertised furnishered short term for residents who were in town for short rotations. They were the best: never around, always at work.
The only issue is when I yell at the DW and then run into the tenat the next day.
It's pretty easy, and I agree with Bill's points. There is a specific IRS booklet on this that explains how to do the depreciation, etc. You need to distinguish between repairs and improvements, but I always found the distinction vague and was pretty aggressive about counting things as repairs. So far the IRS seems happy with my returns. (I do them myself, have never used a computer program.)
I also agree that the most important thing is good tenants. We have always charged considerably below market rate for the upper flat in our house in order to attract and keep good tenants. We have had just three in nearly 30 years. No amount of rent will compensate for destructive or unpleasant tenants in a building you are living in.
Always good to consult a local real estate/tax atty who knows the local scene, particulary if you are first starting out as a landlord; there are a lot of technical requirements which can trip you up if you don't follow them by the letter.
For any major improvements (kitchen, bath), consider doing improvements to the rental unit first, using it for taxes, then moving into that unit after the appropriate time has passed (again, talk to tax guy/atty) and then doing the improvements to the other unit -
Oh, and I checked on your profile, you're here in Mass so you should ABSOLUTELY talk to a lawyer before you rent the place out. Compliance with the lead paint law alone means you need legal advice as a new LL.
Edited 4/21/2005 4:51 pm ET by RickD
Go to
http://www.irs.gov/index.html
Under the search look up Publication 527. This has all the tax information regarding rental properties. There are various schedules and forms associated with rentals that you will have to use when reporting the income.
Schedule E for reporting income.
Form 4562 for depreciation.
Use 4562 for depreciating the property and your vehicle if you use it for the business. Also repairs such as roof,siding,windows...
There are alot of benefits to living in a rental such as the ability to deduct expenses. However you also have to count the depreciation that you were allowed to take as income if or when you sell the property.
The IRS website is quite helpful and so are the folks who work there if you have questions concerning the tax code.
J.P.