Author Topic: Help with rental deductions  (Read 3277 times)

Stachetastic

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Help with rental deductions
« on: January 13, 2016, 12:01:49 PM »
I've read the IRS website, and searched 'round these parts, but I'm not finding a true "tax deductions for dummy landlords."

An example:

I had the roof repaired on a duplex (both units rented) last summer to the tune of $1500. How do I show depreciation?

I know this is landlording 101, but can't for the life of me find a step by step guide. Please, Explain it Like I'm 5! Thanks!

DevoCPA

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Re: Help with rental deductions
« Reply #1 on: January 13, 2016, 02:16:27 PM »
Since you've already decided its an improvement and not a repair, just divide 1,500 by 27.5 and add $55 to your depreciation expense. Include form 4562 with your tax return. See form 4562 instructions for your step by step guide.

skuzuker28

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Re: Help with rental deductions
« Reply #2 on: January 13, 2016, 04:57:11 PM »
Since you've already decided its an improvement and not a repair, just divide 1,500 by 27.5 and add $55 to your depreciation expense. Include form 4562 with your tax return. See form 4562 instructions for your step by step guide.

This.

Alternatively if you use any kind of tax preparation software (TurboTax et al) they should have a way to calculate and track depreciation.

Drifterrider

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Re: Help with rental deductions
« Reply #3 on: January 14, 2016, 05:01:35 AM »
I've read the IRS website, and searched 'round these parts, but I'm not finding a true "tax deductions for dummy landlords."

An example:

I had the roof repaired on a duplex (both units rented) last summer to the tune of $1500. How do I show depreciation?

I know this is landlording 101, but can't for the life of me find a step by step guide. Please, Explain it Like I'm 5! Thanks!

Define "repaired".  Generally, if you spend more than one half of the cost of a replacement it would be categorized as a capital improvement.  I don't think $1,500 buys you much roof these days so the answer depends on what was "repaired".

Stachetastic

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Re: Help with rental deductions
« Reply #4 on: January 14, 2016, 05:41:24 AM »
I've read the IRS website, and searched 'round these parts, but I'm not finding a true "tax deductions for dummy landlords."

An example:

I had the roof repaired on a duplex (both units rented) last summer to the tune of $1500. How do I show depreciation?

I know this is landlording 101, but can't for the life of me find a step by step guide. Please, Explain it Like I'm 5! Thanks!

Thanks for the responses! Yes, I'm very unclear on this. I didn't "decide" it was an improvement rather than a repair. I don't really understand the difference.  I do use turbotax, but I didn't see any forms, and when I click on the more info tab, it was clear as mud.

Define "repaired".  Generally, if you spend more than one half of the cost of a replacement it would be categorized as a capital improvement.  I don't think $1,500 buys you much roof these days so the answer depends on what was "repaired".

skuzuker28

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Re: Help with rental deductions
« Reply #5 on: January 14, 2016, 08:11:24 AM »
I've read the IRS website, and searched 'round these parts, but I'm not finding a true "tax deductions for dummy landlords."

An example:

I had the roof repaired on a duplex (both units rented) last summer to the tune of $1500. How do I show depreciation?

I know this is landlording 101, but can't for the life of me find a step by step guide. Please, Explain it Like I'm 5! Thanks!

Thanks for the responses! Yes, I'm very unclear on this. I didn't "decide" it was an improvement rather than a repair. I don't really understand the difference.  I do use turbotax, but I didn't see any forms, and when I click on the more info tab, it was clear as mud.

Define "repaired".  Generally, if you spend more than one half of the cost of a replacement it would be categorized as a capital improvement.  I don't think $1,500 buys you much roof these days so the answer depends on what was "repaired".

I'm a tax preparer, and I actually just got out of a 4-hour continuing education course on the recent tangible property regulations.  You heard that right, 4 hours, and that was just an overview.

Long story short, you should be able to deduct it currently under one safe harbor or another.  However, you will want to be able to articulate WHY and HOW that expense qualifies under a safe harbor because under examination the burden of proof will fall on you.  If you aren't going to do the research yourself or engage a professional to do it for you, the safest bet is to capitalize it.

DISCLAIMER: I am not your accountant, and the above should not be considered professional advice.  Consult a competent professional in your area for more information regarding your specific situation.

DevoCPA

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Re: Help with rental deductions
« Reply #6 on: January 14, 2016, 10:36:48 AM »
Isn't the safe harbor only $500 in his case? If he wants to deduct the whole thing currently he would need to prove its a repair and not an improvement. An improvement is defined as a betterment, adaptation, or restoration:

1. An expenditure is for a betterment if it:
ameliorates a “material condition or defect” in the property that existed before it was acquired or when it was produced--it makes no difference whether or not you were aware of the defect when you acquired the unit of property,
results in a “material addition” to the property--for example, physically enlarges, expands, or extends it, or
results in a “material increase” in the property's capacity, productivity, strength, or quality.

2. An expenditure is for a restoration if it:
returns a property that has fallen into disrepair to its “ordinarily efficient operating condition”
rebuilds the property to a like-new condition after the end of its economic useful life, or
replaces a major component or substantial structural part of the property
replaces a component of a property for which the owner has taken a loss, or
repairs damage to a property for which the owner has taken a basis adjustment for a casualty loss.

3. You must also depreciate amounts you spend to adapt property to a new or different use. A use is “new or different” if it is not consistent with your “intended ordinary use” of the property when you originally placed it into service







skuzuker28

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Re: Help with rental deductions
« Reply #7 on: January 14, 2016, 11:27:24 AM »
Isn't the safe harbor only $500 in his case? If he wants to deduct the whole thing currently he would need to prove its a repair and not an improvement. An improvement is defined as a betterment, adaptation, or restoration:

1. An expenditure is for a betterment if it:
ameliorates a “material condition or defect” in the property that existed before it was acquired or when it was produced--it makes no difference whether or not you were aware of the defect when you acquired the unit of property,
results in a “material addition” to the property--for example, physically enlarges, expands, or extends it, or
results in a “material increase” in the property's capacity, productivity, strength, or quality.

2. An expenditure is for a restoration if it:
returns a property that has fallen into disrepair to its “ordinarily efficient operating condition”
rebuilds the property to a like-new condition after the end of its economic useful life, or
replaces a major component or substantial structural part of the property
replaces a component of a property for which the owner has taken a loss, or
repairs damage to a property for which the owner has taken a basis adjustment for a casualty loss.

3. You must also depreciate amounts you spend to adapt property to a new or different use. A use is “new or different” if it is not consistent with your “intended ordinary use” of the property when you originally placed it into service
There is also the Small Taxpayer safe harbor, but the amount he could deduct would depend on his basis in the building.

There de minimis safe harbor is now 2500 starting this year, but the IRS has give audit protection to prior years up to this amount if you were otherwise complying with the regs.

Stachetastic

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Re: Help with rental deductions
« Reply #8 on: January 15, 2016, 06:59:28 AM »
Thanks all! I think it's time to hire a tax professional. :)

redbirdfan

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Re: Help with rental deductions
« Reply #9 on: January 19, 2016, 01:15:31 AM »
See if your local library has a copy of "Every Landlord's Tax Deduction Guide 2015".  It helps a lot and goes over the difference between repairs and improvements, safe harbor, different depreciation categories, etc.  In the alternative, your tax preparation fees are tax deductible.   

Stachetastic

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Re: Help with rental deductions
« Reply #10 on: January 19, 2016, 06:11:20 AM »
See if your local library has a copy of "Every Landlord's Tax Deduction Guide 2015".  It helps a lot and goes over the difference between repairs and improvements, safe harbor, different depreciation categories, etc.  In the alternative, your tax preparation fees are tax deductible.

Thanks! I had no idea the prep fees were deductible. I contacted a local accounting firm, and they will be doing mine for $275. Certainly not mustachian, but I didn't think that sounded too bad for the assurance that they're done correctly.