Rental Property Investor · Round Rock, TX · Member since 2016 · 1k+ posts · 971 votes
In a recent post about how to minimize the taxes on rental income it was mentioned that:
Setting aside reserves is an expense, so long as they are not excessive. When you draw down the reserve you count it as income but offset it with the expense causing the draw. Best to put the money into a trust account (or escrow account) for that purpose. The loss of control justifies the expensing of the reserve on your taxes.
As a landlord, I do have to set aside a quite substantial reserve amount for capital expenditures, and it would be great if there is a way to have those funds counted as a deductible expense. Is the above statement true, and what is the correct way to set up such a trust account?
It was an idea posted by some investor who is not a tax pro, and an idea that does not work. You've been around this forum long enough to know the difference between professional advice and random opinions.
It was an idea posted by some investor who is not a tax pro, and an idea that does not work. You've been around this forum long enough to know the difference between professional advice and random opinions.
Thanks @Michael Plaks, I thought it was too good to be true, hence this post, to verify with experts. BP is a great source of information, and at times, of misinformation.
@Michael Plaks Is it possible it can be expensed if you use an accounting method other than cash? The only other method I'm aware of is accrual. Or, perhaps if you were in public company their reporting requirements would be as such? Thanks.
@Michael Plaks Is it possible it can be expensed if you use an accounting method other than cash? The only other method I'm aware of is accrual.
Even under the accrual method reserves are not deductible. What is deductible under accrual is a bill from your contractor that you have not paid yet, but it's different from reserves.