Taxes and investment properties

[Frank]

How do you get the most tax benefit for your investment property?

We are still living in the house for at least another couple of weeks, then I begin work on things getting it ready hopefully to be ready for leasing early February. At what point can I/should I keep a log of repairs/improvements because it will be leased? Do you purchase things on a separate credit card? When do I swap over my homestead exemption?

[Slowhand]

The federal tax code is pretty straightforward for rental income/expenses if it's not your main source of income. It's all taken care of in 1040 schedule E. The big kicker is depreciation: you're probably going to be turning a small profit off of your rentals on a cash basis, depending on repairs and whatnot, but depreciation will help erase that profit and turn it into a loss, which is a good thing. That taxable loss (up to $25,000 per year since it's not your primary income) will be deducted from AGI, leaving you less taxable income and reducing some of your tax burden.

You don't need to make purchases/expenses on a separate card at all, so long as you've got documentation that they're for the rental property, but I always think it's a good idea to keep your different revenue and expense streams separate when possible.

I believe the Revenue Code section on rental income is 1250, if my memory serves me right and you want to look it up yourself, but feel free to shoot me a PM with any specific questions.

[jakesford]

Keep up with all of it, it will either be expensed or capitalized and depreciated. Also depending on how many days you end up renting the property vs. using it as a personal residence may limit your total deductions. Using a separate CC and or bank account will help keep you organized and would make tax time a little easier, but you would still need details on what the expense were for.

Also keep up with mileage to and from the property that is related to renting it, cost of advertising it, etc.

Rental income & losses are passive and subject to additional limits. The $25k allowed loss limit also phases out depending on your AGI.

*edit, slowhand beat me to it.

[03mustangdude]

how do you calculate depreciation?

[Slowhand]

how do you calculate depreciation?

Form 4562; you can start taking depreciation the day the property becomes available for rent.

[03mustangdude]

Ya but how do you estimate its loss?
scenario:
100k house- rent 1k a month 11 months rented 11k at end of year. 2k extra for taxes and repairs. 9k net gain from property. How does depreciation play in?

[Slowhand]

Ya but how do you estimate its loss?
scenario:
100k house- rent 1k a month 11 months rented 11k at end of year. 2k extra for taxes and repairs. 9k net gain from property. How does depreciation play in?

Depreciation will reduce that net gain. The aforementioned form will have instructions walking you through the calculation, but it can be somewhat complex and ambiguous.