Turned my primary home into a rental in 2016, tax questions

[Mazzinator]

July 1, 2016 my primary home became a rental property. We hired a property manager and we have the income, fee and repair form from them. So my questions are:

1. How far back can i deduct repairs? I have structural work done in May and June. Can i deduct this as repairs or do i use the long term deprectiation on these.
2. Can I only deduct the mortgage interest, hoa and taxes for the months it was rented out? Or do i use the entire year amount?
3. What do i do if my repairs exceed 2% of the property's value? It's less than $10,000, but my h&r block software says i can only deduct it if it's under 2% or $10,000.
4. Do i need to hire a cpa or do you think i can figure this all out?!?

Thanks for all your help!!!

[SeattleCPA]

You want to be really careful you're not torpedoing your Sec. 121 exclusion. That exclusion (loophole) can be really significant depending on the specifics of your situation. Here's a blog post that explains (you need to scroll down to the "Loophole #1: Section 121 Exclusion" discussion)...

http://whitecoatinvestor.com/real-estate-tax-loopholes-for-unintentional-investors/

General answer to your other questions: You can't deduct your "production of income" expenses on your Schedule E until you have the rental in service... so half a year of deductions for many of outlays.

The repairs stuff BTW is tricky. I think you'd just want to depreciate that stuff...

P.S. I am all for DIY but you probably want to find a local tax accountant unless you're willing to learn a lot more about how the tax accounting for real estate rentals work.

[CareCPA]

For #3, I'm sure SeattleCPA knows the rules and just simplified it for you. However, there is generally no set dollar threshold for repairs and maintenance to be capitalized once the asset is placed in service (i.e. July 1). You have to analyze each expenditure and whether it meets the test for capitalization when compared against its unit of property. It's a little difficult to explain through a forum which is probably why Seattle said you should just capitalize and depreciate it. From a tax standpoint, capitalizing and depreciating is the most conservative answers as it postpones the deduction.

[Drifterrider]

July 1, 2016 my primary home became a rental property. We hired a property manager and we have the income, fee and repair form from them. So my questions are:

1. How far back can i deduct repairs? The day the property was available to rentI have structural work done in May and June. Can i deduct this as repairs or do i use the long term deprectiation on these Neither.  You repaired your primary residence.  No deduction..
2. Can I only deduct the mortgage interest, hoa and taxes for the months it was rented out?You deduct those expenses on schedule E, for those paid prior to it being a rental you deduct on your Schedule A.(personal) Or do i use the entire year amount?
3. What do i do if my repairs exceed 2% of the property's value? It's less than $10,000, but my h&r block software says i can only deduct it if it's under 2% or $10,000. Repairs needed to make a property rentable should be factored into the basis of the property for depreciation.
4. Do i need to hire a cpa or do you think i can figure this all out?!?  If you are asking here, you should probably engage a tax specialist.  I'd go with a CPA not an H&R block type tax preparer.  You will want to start landlording on the right foot with the tax man.

Thanks for all your help!!!

You need to establish a baseline cost for depreciation.  What was the lower of cost or market value of your building (not land) on the day you made it available for rent?  That is your depreciation starting point. 

[SeattleCPA]

For #3, I'm sure SeattleCPA knows the rules and just simplified it for you. However, there is generally no set dollar threshold for repairs and maintenance to be capitalized once the asset is placed in service (i.e. July 1). You have to analyze each expenditure and whether it meets the test for capitalization when compared against its unit of property. It's a little difficult to explain through a forum which is probably why Seattle said you should just capitalize and depreciate it. From a tax standpoint, capitalizing and depreciating is the most conservative answers as it postpones the deduction.

FrugalGrad, you are correct in your hunch... :-) As the tangible property regulations went into effect in 2014, we did several blog posts and then a $100 monograph on them... and those experiences made me conclude that not only are the regs a challenge to most practitioners, but they're not anywhere close to a DIY project.

Our principal Evergreen Small Business blog post on the TPRs had about 400 comments... and this for a blog that, if I'm lucky, gets a couple of comments for a good post.

[Mazzinator]

Thank you all so much!! I really like to understand as much as I can, so I can make good decisions on the property in the future. Looks like i'm in over my head to prep my own taxes though. I did try through h&r block (free for military) and i wasn't confident in the numbers I entered.

I'm going to find a cpa and pick his/her brain while i'm there.

Thanks again!!!