rental income tax deductible question (tenant, investment, landlords, property)

[gagaliya]

Hi,

I have a tax question for the landlords. I just bought a rental unit end of last month, and put in about $5000 worth of renovation/appliances. The first month rental income will be for dec for $2000.

Does that mean i will be losing the $3000 (5000-2000) tax deductible? or can they be carried over to next year to be applied to the jan/feb rental income?

thanks,
-gaga

[aneftp]

It depends on your overall income. If your AGI is more than $100K (completely phased out at 150K) a year, than you WILL NOT get to write off any rental losses unless you are an "active real estate person" aka have to log about 700 plus hours in real estate.


Since most landlords in real estate are "passive" than you will not get to write off the losses if you make more than the threshold. Of course, the IRS lets you carry these losses if you make over 100K and add it to your cost-basis when you sell.

Now if your AGI is less than 100K, than up to 25K a year can be written off as rental losses.

I just love taxes. They are so complicated but good to know laws.

[DowntownVentura]

Originally Posted by gagaliya

Hi,

I have a tax question for the landlords. I just bought a rental unit end of last month, and put in about $5000 worth of renovation/appliances. The first month rental income will be for dec for $2000.

Does that mean i will be losing the $3000 (5000-2000) tax deductible? or can they be carried over to next year to be applied to the jan/feb rental income?

thanks,
-gaga

Ok, gaga, first and foremost, I highly recommend you educate yourself on real estate investment taxes. It is not difficult but it is complicated.

To answer your question, any expenses you incur from the time you closed on the property until it was available to be rented are called "Startup Expenses". They are not to be treated as operating expenses. It is assumed(by the IRS) that they are capital improvements. But, there is a provision to deduct the first $5,000 of startup expenses the first year. Works out well for you. Anything over that has to be depreciated over 15 years in equal installments.

Also, 'available to be rented' is not the same as 'actually rented'. When was it all done and ready to go? Expenses before then are startup expenses, expenses after that are either operating expenses (deductible) in the year they incurred or capital expenses (improvements) depreciated.

Going forward, capital expenses in 2010 are depreciated but on top of that you can depreciate 50% of it the first year. You then depreciate the rest of the years at half value. Coming in 2011, it looks like you will be able to depreciate 100% capital expenses in the year incurred. We will know as the final bill gets voted.

edited to add: The above should be interpreted as general comments and does not apply to each and every situation. It should not be used to prepare your taxes but rather as a general idea on what the process is. Please consult a tax professional with your exact situation for best advice.

[gagaliya]

thanks guys, those are definitely "Startup Expenses", as i just bought the unit and did the rennovation/appliance, then put it on the market for rent. It just happens it was rented the same day it was put on the market (tenant willing to pay entire dec month rent even though we didnt sign lease/give key until a few days after dec). Still a bit fuzzy on the rest.

Hopefully turbotax will guide me through it with some more googling on my part.

I never have anyone else do my taxes, just dont feel comfortable.