Since we're on the subject of rental properties...lets talk taxes

[lbhsbz]

I rented my place out starting in October of last year, so I only had 3 months on the books...not much benefit.

I've done nothing to the place that cost me money...I replaced a water heater valve that I received from the manufacturer under warranty, and replaced a sink that cracked (also under warranty)....so about an hour or 2 of time invested, but not much else.

I obviously get the mortgage and property tax write off, as well as depreciation, but I don't really have any receipts to claim much of anything as far as repairs go...on either the rental or my current house. How do you make the most of an income property when it comes to tax advantage?

 

[79 HUSTLER]

You go there weekly and mow the grass and do the yard work right??? So mileage. Didn’t you replace Some things in your new hou.... I mean the rental during those three months?

 

[lbhsbz]

You go there weekly and mow the grass and do the yard work right??? So mileage. Didn’t you replace Some things in your new hou.... I mean the rental during those three months?

My tenant is a contractor...maybe I can have him invoice me for the flooring upgrades...er, repairs due to the damage from the cracked sink...lol

 

[HNL2LHC]

Just flew to Havasu to do a little work on the house we bought last month getting it ready to rent. Went to breakfast with Sean to discuss things that need to be done down the road a year or two. We shall see what other expenses we will incur with an out of state property.

 

[HotRod82]

Do you have your rental setup as a Corporation? The liability involved in rentals is astronomical, so you should consider it. Being incorporated also draws less attention to receipts run through the rental property.....I write off everything except groceries.

 

[Bobby V]

Just flew to Havasu to do a little work on the house we bought last month getting it ready to rent. Went to breakfast with Sean to discuss things that need to be done down the road a year or two. We shall see what other expenses we will incur with an out of state property.

I added up all my receipts for Havasu this past weekend.
$2,300.00 property tax
$2,200.00 in utilities
$8,500.00 in repairs, weed control, AC repair, TVs, paint, stucco repair, new kitchen appliances....

It adds up.

 

[DWC]

Great thread. Thank you.

 

[lbhsbz]

Do you have your rental setup as a Corporation? The liability involved in rentals is astronomical, so you should consider it. Being incorporated also draws less attention to receipts run through the rental property.....I write off everything except groceries.

No. And I did everything I needed to do (and could afford to do) to my new place before the old place got rented...so I haven't spent more than a few hundred bucks on anything house or property related since the end of october of last year. I need to get creative.

 

[LargeOrangeFont]

No. And I did everything I needed to do (and could afford to do) to my new place before the old place got rented...so I haven't spent more than a few hundred bucks on anything house or property related since the end of october of last year. I need to get creative.

It is not illegal to run your business poorly.

It takes me 3 trips to Havasu to accomplish anything at my rentals

 

[BajaMike]

Do you have your rental setup as a Corporation? The liability involved in rentals is astronomical, so you should consider it. Being incorporated also draws less attention to receipts run through the rental property.....I write off everything except groceries.

It doesn’t need to be a corp or LLC, if you have plenty of insurance, which is pretty cheap.

It its a corp, you can’t write off the expenses on your personal tax return, the corp has its own tax return, and there are a lot of expenses related to the corporation with the state and feds.

An LLC, you write it off on your personal return.

If its personally owned, you write off on your personal return.

A good CPA/Enrolled agent can advise you if any expenses “raise a flag” for being excessive. You should have a good tax guy.....don’t do it your self.

 

[DWC]

What are the rules if you rent part of the year..

 

[Bobby V]

What are the rules if you rent part of the year..

I have rented to snowbirds for 33 years in Havasu and never had a problem. Usually 4-6 months. I think your only technically allowed to use the home for 2 weeeks. I could be wrong on the amount of days.

 

[Havasu blue label]

If no 1099 from rental co don't report it .renters ins is about the same as basic home ins just higher coverage it's taxed on your personal returns don't fill out that az renters tax paper they will audit your az properties if your from calif

 

[HotRod82]

It doesn’t need to be a corp or LLC, if you have plenty of insurance, which is pretty cheap.

It its a corp, you can’t write off the expenses on your personal tax return, the corp has its own tax return, and there are a lot of expenses related to the corporation with the state and feds.

An LLC, you write it off on your personal return.

If its personally owned, you write off on your personal return.

A good CPA/Enrolled agent can advise you if any expenses “raise a flag” for being excessive. You should have a good tax guy.....don’t do it your self.

Totally agree on don't do taxes yourself, but have to disagree on not needing to be an LLC or Corp. I guess it depends on how much you have to lose. If you don't have a ton to lose, the scumbag attys won't be very aggressive. If you have deeper pockets , a simple lawsuit can turn into a multi year nightmare. We completely changed our financial structure a few years ago after my Dad was collected in an auto accident that was not his fault. Due to him having a few bucks, it took him 4 years to get out of the lawsuit after many sleepless nights. You wouldn't believe what the attys tried to pull with my Dad. To me, you can't put a price on the security of a corp.

 

[78Southwind]

A little tidbit for those of you that their modified adjusted gross income has increase to a point that your deductions are getting close to being completely phased-out. You can increase your 401(k) contributions (if you are not already maxing them out) to help stay under the $100,000 to $150,000 phase-out.

 

[J.P.]

78 Southwind are you talking about phase out of the deductions on your rental property. I have had a rental for years and the deductions for it seem to be done. In other word the expenses I show do not help much at all. Need to buy 2 or 3 more with a mortgage to get back to where the write offs do offset cost.

 

[Uncle Dave]

I rented my place out starting in October of last year, so I only had 3 months on the books...not much benefit.

I've done nothing to the place that cost me money...I replaced a water heater valve that I received from the manufacturer under warranty, and replaced a sink that cracked (also under warranty)....so about an hour or 2 of time invested, but not much else.

I obviously get the mortgage and property tax write off, as well as depreciation, but I don't really have any receipts to claim much of anything as far as repairs go...on either the rental or my current house. How do you make the most of an income property when it comes to tax advantage?

An LLC pass through entity set up as an s corp won't shield you from a lawsuit -
A C corp will, but they are expensive to set up and run and offer no pass through tax benefits.

Get yourself a good CPA (NOT H&R Block )- the cost of which you can now deduct and they will provide up to the minute lists and recommendations as to what you should be looking at and doing.

If you haven't open and run a completely separate account for the rental property from your main bank account and stop co-mingling the two, if you ever have to turn anything over - your personal accounts are now separated from the rentals.

Setup separately - at the end of the year you have one file to send and your guy tweaks it and you are done.

Some good advice here -like mileage for regular inspections

UD

 

[pronstar]

Umbrella:
Pays out when you are found liable.
Liability is unlimited.
If liability exceeds policy limits, your personal assets are at risk.

LLC:
Limits your total liability to your initial investment.



Sent from my iPhone using Tapatalk Pro

 

[Bobby V]

78 Southwind are you talking about phase out of the deductions on your rental property. I have had a rental for years and the deductions for it seem to be done. In other word the expenses I show do not help much at all. Need to buy 2 or 3 more with a mortgage to get back to where the write offs do offset cost.

Seems to be the same for me. A few years ago I got a good refund due to my rental expenses. But not much lately. May have been depreciation? Need to ask my tax guy in a few weeks.

 

[LargeOrangeFont]

Seems to be the same for me. A few years ago I got a good refund due to my rental expenses. But not much lately. May have been depreciation? Need to ask my tax guy in a few weeks.

Expenses are expenses. Maybe you were writing off more of the interest on the mortgage then?

 

[Waterjunky]

I am due to separate the house and the rental into different accounts.

 

[Cdog]

I get screwed by the depreciation phase out even with maxing out the 401k. It sucks because that made a huge difference. from my understanding if I ever have a bad year I’ll have a bunch of depreciation banked because it rolls over a year after year. You’re able to use it if you have a year were your AGI is 150k and under.

there is no co-mingling between my personal accounts and business accounts.

 

[78Southwind]

78 Southwind are you talking about phase out of the deductions on your rental property. I have had a rental for years and the deductions for it seem to be done. In other word the expenses I show do not help much at all. Need to buy 2 or 3 more with a mortgage to get back to where the write offs do offset cost.

I am talking about allowable deductions. Let's say that a husband makes $100,000 and his wife makes $50,000 MAGI so together they are at the limit of phase-out $150,000. At this point ($150,000) you are no longer able to take deductions against your regular (job) income. The deductions will then be taken in future lower income years or you will wait until you sell the property to realize them. In your case you probably don't have a loss on your schedule E so it doesn't really matter. But let's say the husband and his wife had a loss on their schedule E of $10,000. If they did some tax planning a head of time they would have been able to catch the problem early and just increased their 401(k) contributions lowering their MAGI to accommodate the schedule E loss. This would allow them to deduct the loss from their regular (job) incomes. I am no account/cpa so don't take this as advice but the equation is pretty simple ($150,000 is phase-out and $100,000 is the start of phase-out with $25,000 being the max deduction ($150,000-$100,000)/2 = $25,000). So let say the husband and his wife were able to increase each of their 401(k)'s by $10,000 each, $20,000 total reducing their MAGI to $130,000. Take the formula ($150,000-$130,000)/2 = $10,000 and now they are able to take the current deduction. If your in the Real Estate business then you really don't have to worry about it because that is your job/business, it's no longer a passive investment.

https://www.irs.gov/pub/irs-pdf/p925.pdf

 

[78Southwind]

I get screwed by the depreciation phase out even with maxing out the 401k. It sucks because that made a huge difference. from my understanding if I ever have a bad year I’ll have a bunch of depreciation banked because it rolls over a year after year. You’re able to use it if you have a year were your AGI is 150k and under.

there is no co-mingling between my personal accounts and business accounts.

Just curious, I thought you were a Real Estate Agent, wouldn't that put you under the Real Estate Professional guidelines allowing you to off-set losses from rentals against Real Estate sales income over $150,000?

 

[Cdog]

Just curious, I thought you were a Real Estate Agent, wouldn't that put you under the Real Estate Professional guidelines allowing you to off-set losses from rentals against Real Estate sales income over $150,000?

Sure I can deduct expenses but you lose/bank the depreciation once you exceed the 150k joint/married AGI. Or at least that's what I have been told by my accountant.

Mine is held as a personal investment not in an entity. Perhaps that's different?

 

[78Southwind]

Sure I can deduct expenses but you lose/bank the depreciation once you exceed the 150k joint/married AGI. Or at least that's what I have been told by my accountant.

Mine is held as a personal investment not in an entity. Perhaps that's different?

I am not saying your wrong but that doesn't sound right to me, Schedule E just like C is basically a profit and loss statement. Like I said earlier I am no accountant/cpa but you might want to ask others that are in your situation. Here is what the IRS has to say...

Real Estate Professional
Generally, rental activities are passive activities even if you materially participated in them. However, if you qualified as a real estate professional, rental real estate activities in which you materially participated aren’t passive activities. For this purpose, each interest you have in a rental real estate activity is a separate activity, unless you choose to treat all interests in rental real estate activities as one activity. See the Instructions for Schedule E (Form 1040), Supplemental Income and Loss, for information about making this choice. If you qualified as a real estate professional for 2018, report income or losses from rental real estate activities in which you materially participated as nonpassive income or losses, and complete line 43 of Schedule E (Form 1040). If you also have an unallowed loss from these activities from an earlier year when you didn’t qualify, see Treatment of former passive activities under Passive Activities, earlier. Qualifications. You qualified as a real estate professional for the year if you met both of the following requirements.

• More than half of the personal services you performed in all trades or businesses during the tax year were performed in real property trades or businesses in which you materially participated.

• You performed more than 750 hours of services during the tax year in real property trades or businesses in which you materially participated. Don’t count personal services you performed as an employee in real property trades or businesses unless you were a 5% owner of your employer. You were a 5% owner if you owned (or are considered to have owned) more than 5% of your employer's outstanding stock, outstanding voting stock, or capital or profits interest. If you file a joint return, don’t count your spouse's personal services to determine whether you met the preceding requirements. However, you can count your spouse's participation in an activity in determining if you materially participated. Real property trades or businesses. A real property trade or business is a trade or business that does any of the following with real property.

• Develops or redevelops it.
• Constructs or reconstructs it.
• Acquires it.
• Converts it.
• Rents or leases it.
• Operates or manages it.
• Brokers it.

The IRS explains it in more detail on this form on E3 under Activities That Are Not Passive Activities, Activities of real estate professionals.
https://www.irs.gov/pub/irs-pdf/i1040se.pdf

 

[Cdog]

I am not saying your wrong but that doesn't sound right to me, Schedule E just like C is basically a profit and loss statement. Like I said earlier I am no accountant/cpa but you might want to ask others that are in your situation. Here is what the IRS has to say...

Real Estate Professional
Generally, rental activities are passive activities even if you materially participated in them. However, if you qualified as a real estate professional, rental real estate activities in which you materially participated aren’t passive activities. For this purpose, each interest you have in a rental real estate activity is a separate activity, unless you choose to treat all interests in rental real estate activities as one activity. See the Instructions for Schedule E (Form 1040), Supplemental Income and Loss, for information about making this choice. If you qualified as a real estate professional for 2018, report income or losses from rental real estate activities in which you materially participated as nonpassive income or losses, and complete line 43 of Schedule E (Form 1040). If you also have an unallowed loss from these activities from an earlier year when you didn’t qualify, see Treatment of former passive activities under Passive Activities, earlier. Qualifications. You qualified as a real estate professional for the year if you met both of the following requirements.

• More than half of the personal services you performed in all trades or businesses during the tax year were performed in real property trades or businesses in which you materially participated.

• You performed more than 750 hours of services during the tax year in real property trades or businesses in which you materially participated. Don’t count personal services you performed as an employee in real property trades or businesses unless you were a 5% owner of your employer. You were a 5% owner if you owned (or are considered to have owned) more than 5% of your employer's outstanding stock, outstanding voting stock, or capital or profits interest. If you file a joint return, don’t count your spouse's personal services to determine whether you met the preceding requirements. However, you can count your spouse's participation in an activity in determining if you materially participated. Real property trades or businesses. A real property trade or business is a trade or business that does any of the following with real property.

• Develops or redevelops it.
• Constructs or reconstructs it.
• Acquires it.
• Converts it.
• Rents or leases it.
• Operates or manages it.
• Brokers it.

The IRS explains it in more detail on this form on E3 under Activities That Are Not Passive Activities, Activities of real estate professionals.
https://www.irs.gov/pub/irs-pdf/i1040se.pdf

I'll certainly ask her. I believe depreciation is considered a loss but with no out of pocket/outgoing cashflow it's treated differently. If I were to sell I would recapture the banked depreciation and it would reduce the amount I would have to pay in Cap gains.

Perhaps our local CPA's can chip in some input???

 

[78Southwind]

I'll certainly ask her. I believe depreciation is considered a loss but with no out of pocket/outgoing cashflow it's treated differently. If I were to sell I would recapture the banked depreciation and it would reduce the amount I would have to pay in Cap gains.

Perhaps our local CPA's can chip in some input???

Depreciation is a loss that off-sets current profit or future profit if carried over. If sold out-right the unrealized depreciation or as you put it banked depreciation does not off-set future capital gains only losses do this. Depreciation can be recaptured by the IRS (not you) so it's more like an interest free loan if you sell out-right with out doing a 1031 exchange. Also, what if you never sell or if you sell but through a 1031 exchange? You never got to use those deductions. Like I said I could be completely wrong but that is my understanding.

 

[evantwheeler]

Depreciation is a loss that off-sets current profit or future profit if carried over. If sold out-right the unrealized depreciation or as you put it banked depreciation does not off-set future capital gains only losses do this. Depreciation can be recaptured by the IRS (not you) so it's more like an interest free loan if you sell out-right with out doing a 1031 exchange. Also, what if you never sell or if you sell but through a 1031 exchange? You never got to use those deductions. Like I said I could be completely wrong but that is my understanding.

Working on my 2023 taxes which is my first full year of rental ownership. I have a couple of questions.

1. Can I recover any of the dollar value of my time in doing repairs to my rental? I had a water leak in a bedroom wall that required a plumber, drywall repairs, flooring repairs, etc. I did everything except the plumbing. I only have receipts for materials and the plumber, is there any way to get paid for my time in doing the repairs when I file my taxes? It was too small of a deal to get the shit head insurance company involved in, but it did take a full week of my time self performing the repairs & restoration.

2. Same question as #1 but for capital improvements that get added to the cost basis and depreciated, is there any way to add the dollar value of my time into the cost basis? While I was doing the bedroom leak work, I also did some work in the small 2nd bathroom. I think this work is considered improvements in the eyes of the IRS and will go onto my cost basis and depreciated as opposed to being included on my repair costs on my SchE.

3. Is there any benefit to just adding all of my rental maintenance costs to the costs basis and depreciating it versus including the costs on the SchE and carrying unallowed losses forward? I'd be trying to minimize the amount of unallowed losses each year that I carry forward. My depreciation alone (along with insurance, interest, & taxes), without adding in any repairs, cleaning or supplies exceeds my passive activity loss limitation, so I will be carrying losses forward, just unsure what the best way to do that is, or if it matters. When it comes time to convert this rental to my primary residence, or if I sell it, is there any difference in how the unallowed losses or cost basis is treated when it comes to offsetting capital gains? Do unallowed losses just get added to the cost basis at the time of sale?

 

[HNL2LHC]

Responses might be wrong but it is what I experienced in the 16 years with rentals.

1) my CPA said that I could charge for my time. You can write off the travel expenses and materials though. That is why once I had the reserves I did not do repairs any longer. Not worth loose time with regular workload or vacation time. Not worth the loses incurred.

2) I doubt it but what do I know?

3) This beyond my pay grade. I‘d assume that @shintoooo or the like would have the correct answer. Also if you are still with me might be a good idea to know where the property is located as far as town and state.

Also don’t be like my uncle who cashed out after a few short years when the growth did not materialize. You should be in for the long game. Growth will happen 10-15 and snowball from there. Equity & rents grow all while your fixed mortgage remains the same. Good luck!!!!

 

[evantwheeler]

Responses might be wrong but it is what I experienced in the 16 years with rentals.

1) my CPA said that I could charge for my time. You can write off the travel expenses and materials though. That is why once I had the reserves I did not do repairs any longer. Not worth loose time with regular workload or vacation time. Not worth the loses incurred.

2) I doubt it but what do I know?

3) This beyond my pay grade. I‘d assume that @shintoooo or the like would have the correct answer. Also if you are still with me might be a good idea to know where the property is located as far as town and state.

Also don’t be like my uncle who cashed out after a few short years when the growth did not materialize. You should be in for the long game. Growth will happen 10-15 and snowball from there. Equity & rents grow all while your fixed mortgage remains the same. Good luck!!!!

Thanks! For 1) I believe you meant to say "my CPA said that I could NOT charge for my time?" I don't have travel expenses as the rental is literally the house next door to my primary residence. I know I could include mileage to/from the local Lowes for material runs, but its only a mile away and not worth the trouble for me tracking it.

The rental is in CA.

Trying to not screw myself in the long term. This property will ultimately become my primary residence in the next couple of years. I have read that you get screwed if you don't claim depreciation on a rental....from the internet "even if you choose to not depreciate your rental, the IRS still forces you to recapture the gains as if you properly depreciated the asset." WTF?!?

 

[wzuber]

I believe you can pay day laborers/laborers up to $600.00 cash each for their work and not have to provide a record in support. How many laborers did u train and manage to accomplish said repairs? I thought I recall 6 or 7 from our converstions?

 

[evantwheeler]

I believe you can pay day laborers/laborers up to $600.00 cash each for their work and not have to provide a record in support. How many laborers did u train and manage to accomplish said repairs? I thought I recall 6 or 7 from our conversations?

Shit, and I forgot the professional services/consulting fees I paid you in cash to guide me in the rebuild!

I actually did pay some relatives of the tennants to help with demo on various things last year. I kept my ATM withdrawl slip and noted how much went to the labor and how much went to my plumber, which I do have an invoice for. Those costs are going into the capital improvements that get depreciated out though.

 

[evantwheeler]

Well I found the answer on the paying myself question for capital improvements. Publication 527, page 12 states:

"Add to the basis of your property the amount an addition or improvement actually costs you, including any amount you borrowed to make the addition or improvement. This includes all direct costs, such as material and labor, but DOESN'T include your own labor. It also includes all expenses related to the addition or improvement."

On that same page I also found that the cost of landscaping improvements is usually treated as an addition to the basis of the land, so saving my $2500 in dump fees for property cleanup over the past 1.5 years wasn't a waste of time.

 

[78Southwind]

This is an interesting subject. You really need to look at where the tax savings would be when you go to sell the rental and how you are going to sell it (out right or 1031). Capital Gains Tax is generally lower than Ordinary Income Tax, if so then using up the entire $25,000 phase-out would be my goal. I am guessing that's where your problem is... So I would be looking for ways to lower my MAGI (maxing retirement contributions and Health Savings Accounts). You will have Recapture of Depreciation when you go to sell, so that is another thing to plan for (if not using a 1031 exchange). There use to be a loophole for this if you converted it to a residence but I don't know if it still exists.

 

[evantwheeler]

This is an interesting subject. You really need to look at where the tax savings would be when you go to sell the rental and how you are going to sell it (out right or 1031). Capital Gains Tax is generally lower than Ordinary Income Tax, if so then using up the entire $25,000 phase-out would be my goal. I am guessing that's where your problem is... So I would be looking for ways to lower my MAGI (maxing retirement contributions and Health Savings Accounts). You will have Recapture of Depreciation when you go to sell, so that is another thing to plan for (if not using a 1031 exchange). There use to be a loophole for this if you converted it to a residence but I don't know if it still exists.

Maxing 401k and HSA already. MAGI doesn't leave much of the $25k phase out, but at least I get some. Going to apply for a demotion tomorrow. I find it fascinating how little people know about their tax situation. Even my parents, with multiple rentals and a successful excavation business really have no clue how it all works. They pay the tax guy to do all that.

I think the biggest thing I took away from my research, is that the IRS doesn't care if you depreciate property, but when you go to sell it, they are going to act as if you took maximum depreciation regardless of if you did so or not....so, you best depreciate!

 

[78Southwind]

I think the biggest thing I took away from my research, is that the IRS doesn't care if you depreciate property, but when you go to sell it, they are going to act as if you took maximum depreciation regardless of if you did so or not....so, you best depreciate!

I am curious about this statement. If you didn't depreciate the property over the 27.5 years, why would the IRS act as if you did? Your cost basis didn't change so selling the property would be Sales Price minus Cost Basis equals Capital Gains.

 

[78Southwind]

I find it fascinating how little people know about their tax situation. Even my parents, with multiple rentals and a successful excavation business really have no clue how it all works. They pay the tax guy to do all that.

Tax planning is the key.

My Girlfriends Mother is a Widow but her house is paid off and she really doesn't have any big bills so she is able to live off of her Social Security. Her tax guy told her she didn't need to do her taxes any longer. I asked her why would he tell you that? You should be utilizing your Standard Deduction so that you can ladder (partially convert every year) your Traditional IRA money to a Roth IRA without any additional taxes. She was blown away...her heirs will now receive the money tax-free.

My Girlfriend decided to go back to school full-time so we loaded up her Retirement Plans before Covid. Not only did it help lower the cost of her Covered California when she was working by reducing MAGI, but it also allowed her to use some of the Traditional IRA for school and the rest of it we used to ladder from a Traditional IRA to a Roth IRA. This also allowed her to qualify for Covered California while she was going to school full-time. This allowed her to shelter from a high tax rate and pull it out without any taxes due. Well maybe a little, we will see once she does her taxes this year.

 

[evantwheeler]

I am curious about this statement. If you didn't depreciate the property over the 27.5 years, why would the IRS act as if you did? Your cost basis didn't change so selling the property would be Sales Price minus Cost Basis equals Capital Gains.

Well, I'm probably interpreting this all wrong. Me reading the tax code is probably as bad as going to the doctor after getting my MD from WebMD.

This is what I read on the internet:

"When you go to sell, the IRS will apply depreciation recapture as if you were taking depreciation the whole time. If you fail to take depreciation the whole time, then you will owe tax on the recapture of depreciation that you didn't even take!"

I believe this statement was first backed up when I was reading page 12 of publication 527 under the section "Decreases to Basis" :

You must decrease the basis of your property by any items that represent a return of your costs:
- .....(many various bullet points that are irrelevant)
- Depreciation you deduct OR COULD HAVE DEDUCTED on your tax returns under the method of deprecation you chose.

That specific bullet points you to Publication 551 - Basis of Assets. Page 6 under section "Depreciation":

Depreciation
Decrease the basis of property by the depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. If you took less depreciation than you could have under the method chosen, decrease the basis by the amount you could have taken under that method. If you didn't take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken.

 

[evantwheeler]

Tax planning is the key.

My Girlfriends Mother is a Widow but her house is paid off and she really doesn't have any big bills so she is able to live off of her Social Security. Her tax guy told her she didn't need to do her taxes any longer. I asked her why would he tell you that? You should be utilizing your Standard Deduction so that you can ladder (partially convert every year) your Traditional IRA money to a Roth IRA with no taxes. She was blown away...her heirs will now receive the money tax-free.

My Girlfriend decided to go back to school full-time so we loaded up her Retirement Plans before Covid. Not only did it help lower the cost of her Covered California when she was working by reducing MAGI, but it also allowed her to use some of the Traditional IRA for school and the rest of it we used to ladder from a Traditional IRA to a Roth IRA. This also allowed her to qualify for Covered California while she was going to school full-time.

I need to do more research on the backdoor roth conversion for rolling over some old 401k accounts. I had a long conversation with a friend that does financial advising recently, but took crappy notes. There is something about "comingling of funds" that triggers a wicked tax bill from the IRS that makes no sense to anyone.

I just looked and they have raised the MAGI limits for participation a Roth IRA and I slide in with no limitations. Will look into that this week!

 

[DLC]

I believe you can pay day laborers/laborers up to $600.00 cash each for their work and not have to provide a record in support. How many laborers did u train and manage to accomplish said repairs? I thought I recall 6 or 7 from our converstions?

In this situation it’s best to have a log book where you document any cash pay outs -
what day
what they worked on
the amount of $$$ paid out
names are nice - Juan Cardon and his his brother Jose Cardon and their cousin Cassandra Cordon worked on our duplex - Cass did the final clean prior to renting

 

[78Southwind]

I need to do more research on the backdoor roth conversion for rolling over some old 401k accounts. I had a long conversation with a friend that does financial advising recently, but took crappy notes. There is something about "comingling of funds" that triggers a wicked tax bill from the IRS that makes no sense to anyone.

I just looked and they have raised the MAGI limits for participation a Roth IRA and I slide in with no limitations. Will look into that this week!

Your friend is probably talking about the Pro Rata Rules?

How To Do A Backdoor Roth IRA (Safely) And Avoid The IRA Aggregation Rule And Step Transaction Doctrine​

https://www.kitces.com/blog/how-to-...ation-rule-and-the-step-transaction-doctrine/

There is a good article on the two separate 5 year rules under a Roth IRA Contribution and a Roth IRA Conversion.

Understanding The Two 5-Year Rules For Roth IRA Contributions And Conversions​

https://www.kitces.com/blog/underst...s-for-roth-ira-contributions-and-conversions/

 

[wzuber]

In this situation it’s best to have a log book where you document any cash pay outs -
what day
what they worked on
the amount of $$$ paid out
names are nice - Juan Cardon and his his brother Jose Cardon and their cousin Cassandra Cordon worked on our duplex - Cass did the final clean prior to renting

Oh, ya...that's one of those things you make the week before your audit date....lol

 

[Orange Juice]

If no 1099 from rental co don't report it .renters ins is about the same as basic home ins just higher coverage it's taxed on your personal returns don't fill out that az renters tax paper they will audit your az properties if your from calif

Arizona counties are cracking down on unreported rental income. AI can find all kinds of hidden clues, and if your neighbors don’t like you renting, and you don’t pay them off, you’ll get reported.

 

[Hypnautic]

Could not read through all the posts--some too long for me to read right now.

On the original question. A common missed deduction is if you Self-Manage.
If you do you should deduct anywhere from 7-10% of the rental income for your management time.
I use 8% for mine.

 

[evantwheeler]

Could not read through all the posts--some too long for me to read right now.

On the original question. A common missed deduction is if you Self-Manage.
If you do you should deduct anywhere from 7-10% of the rental income for your management time.
I use 8% for mine.

Are you considered a real-estate professional in the eyes of the IRS, or just an active participant in passive real-estate investing?

Have you passed an IRS audit with the 8% deduction for self-management?

Do you document it or just throw it in as a lump sum line item input on SchE?

 

[dribble]

I rented my place out starting in October of last year, so I only had 3 months on the books...not much benefit.

I've done nothing to the place that cost me money...I replaced a water heater valve that I received from the manufacturer under warranty, and replaced a sink that cracked (also under warranty)....so about an hour or 2 of time invested, but not much else.

I obviously get the mortgage and property tax write off, as well as depreciation, but I don't really have any receipts to claim much of anything as far as repairs go...on either the rental or my current house. How do you make the most of an income property when it comes to tax advantage?

If this is your only rental and you're not in the real estate business you can't write off much of anything. The IRS changed the rules some time ago and now calls it a passive activity. The only thing you can do is rollover the expenses to offset your capital gains when you sell.

About Publication 925, Passive Activity and At-Risk Rules | Internal Revenue Service

Information about Publication 925, Passive Activity and At-Risk Rules, including recent updates and related forms. Publication 925 discusses two sets of rules that may limit the amount of your deductible loss from a trade, business, rental, or other income-producing activity.

www.irs.gov

 

[lbhsbz]

If this is your only rental and you're not in the real estate business you can't write off much of anything. The IRS changed the rules some time ago and now calls it a passive activity. The only thing you can do is rollover the expenses to offset your capital gains when you sell.

About Publication 925, Passive Activity and At-Risk Rules | Internal Revenue Service

Information about Publication 925, Passive Activity and At-Risk Rules, including recent updates and related forms. Publication 925 discusses two sets of rules that may limit the amount of your deductible loss from a trade, business, rental, or other income-producing activity.

www.irs.gov

I posted this like 3 years ago…lol

Tenants left after less than a year and fucked the place up….like blades missing off the ceiling fans lol.

It was during Covid when you couldn’t evict anyone so instead of renting it to more shitbags I sold it for twice what I paid for it in ‘08 and cut my losses.

 

[Hypnautic]

Are you considered a real-estate professional in the eyes of the IRS, or just an active participant in passive real-estate investing?

Have you passed an IRS audit with the 8% deduction for self-management?

Do you document it or just throw it in as a lump sum line item input on SchE?

This is RDP--we are all professionals.

I own investment properties and have also help managed family rental properties as well.
Only audit I have been questioned on by IRS were due to non-cash donations--it was just marked incorrectly on returns as cash donations.

Yes--the Management Deduction goes on line # 11 of the SchE
I list this deduction for each NOO (non-owner occupied) property I own.