Tax questions about 1040 Schedule E rental property

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Tax questions about 1040 Schedule E rental property

Nate Pucel
Member since 2019 · 45 posts · 7 votes

So, it's tax season, and I could use some help. I thought I'd be able to tackle my taxes on my own, but I'm worried that's not going to be the case as I learn more about how complex they can be. However, for a variety of reasons, I'm still hoping to understand some specific things about my tax situation a little more, if possible, just to have info for when they're prepared, or worst case if I have to try and attempt them myself since it's already close to the filing deadline.  

Here's some detail about my situation. I bought a property in 2020 to fix up and rent.  It took forever, and I finally finished early 2024.  I know, I know. It's been rented out as a month to month rental since approximately May between 2 separate renters. I've spent the time compiling all the material and labor costs that accumulated throughout the years of renovation to determine my cost basis, however, I wasn't sure how to write off the years of insurance and taxes that I paid but never wrote off because the property wasn't rent ready yet, or if that's even possible since that's even possible.  

Looking at my tax burden as a whole, I earned rent income as well as investment income, totaling only around 28,000 (14k from rent and 14k from stock investment profits taken).  My deductions from the rental, without anything added related to my question about past years taxes/insurance, comes to approximately 21k (this includes things like vehicle insurance, too, which is something I'm not sure if I can deduct).   Related to this, I have another property that I've been renovating since finishing the last one and it's almost complete that I've paid insurance and taxes on.

So, my main questions are (while using a 1040 schedule E):

1.  Can I add together and deduct the insurance/taxes from 2020, 2021, 2022 and 2023 on my 2024 taxes from the first property?

2.  Can my deduction from the rental be applied to the capital gains from my stocks since the losses greatly exceed the income from just the rental in 2024?

3.  If the answer to question 2 is yes, should I/ can I, apply the tax/insurance payments in 2024 on my second property toward my overall taxable income from 2024, or should I wait and take that deduction in 2025 when it's complete and starts generating rental income?

Thanks in advance for any help, and please feel free to add anything I'm likely missing.

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Ryan SpathBusiness Member
Real Estate Agent · Boise, ID · Member since 2017 · 557 posts · 376 votes
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@Nate Pucel I would 100% get with a CPA on this. Everyone is going to have advise on this and we do not know your exact situation. 

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  • Ryan SpathBusiness Member
    Real Estate Agent · Boise, ID · Member since 2017 · 557 posts · 376 votes
    1y

    @Nate Pucel I would 100% get with a CPA on this. Everyone is going to have advise on this and we do not know your exact situation. 

    [email protected]208-600-2814
    2Reply
  • Jason MalabuteBusiness Member
    Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 899 votes
    1y


    There’s a lot of nuances to the tax law for your particular situation, and it’s really hard to give solid advice online without knowing all the details. I’d highly recommend reaching out to a CPA who specializes in real estate to do some tax planning and projections for you. That way, you can see what the best game plan is for your situation and maximize your tax savings.

    There are a lot of variables to consider, including the timing of deductions, passive activity loss limitations, and how your other income sources might affect your overall tax strategy. A professional can help you navigate these complexities and give you tailored advice.

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  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    1y
    Quote from @Nate Pucel:

    So, it's tax season, and I could use some help. I thought I'd be able to tackle my taxes on my own, but I'm worried that's not going to be the case as I learn more about how complex they can be. However, for a variety of reasons, I'm still hoping to understand some specific things about my tax situation a little more, if possible, just to have info for when they're prepared, or worst case if I have to try and attempt them myself since it's already close to the filing deadline.  

    Here's some detail about my situation. I bought a property in 2020 to fix up and rent.  It took forever, and I finally finished early 2024.  I know, I know. It's been rented out as a month to month rental since approximately May between 2 separate renters. I've spent the time compiling all the material and labor costs that accumulated throughout the years of renovation to determine my cost basis, however, I wasn't sure how to write off the years of insurance and taxes that I paid but never wrote off because the property wasn't rent ready yet, or if that's even possible since that's even possible.  

    Looking at my tax burden as a whole, I earned rent income as well as investment income, totaling only around 28,000 (14k from rent and 14k from stock investment profits taken).  My deductions from the rental, without anything added related to my question about past years taxes/insurance, comes to approximately 21k (this includes things like vehicle insurance, too, which is something I'm not sure if I can deduct).   Related to this, I have another property that I've been renovating since finishing the last one and it's almost complete that I've paid insurance and taxes on.

    So, my main questions are (while using a 1040 schedule E):

    1.  Can I add together and deduct the insurance/taxes from 2020, 2021, 2022 and 2023 on my 2024 taxes from the first property?

    2.  Can my deduction from the rental be applied to the capital gains from my stocks since the losses greatly exceed the income from just the rental in 2024?

    3.  If the answer to question 2 is yes, should I/ can I, apply the tax/insurance payments in 2024 on my second property toward my overall taxable income from 2024, or should I wait and take that deduction in 2025 when it's complete and starts generating rental income?


    As others have said, no matter how much pieces of information you pick from our responses, some pieces will be missing because we do not have all the pieces of your situation.

    So, here're some general pointers. Again - general - meaning that may not apply to your situation.

    1. Your 2020 to mid-2024 taxes and insurance are most likely not deductible. They are added to the cost of the property and slowly depreciated.

    2. Rental losses do not normally offset capital gain from stocks.

    File an extension before April 15 that gives you time until October 15 to complete the job and find some help.

    1Reply
  • Stephen Nelson
    Accountant , CPA, MBA in Finance, MS in Taxation · Redmond, WA · Member since 2025 · 172 posts · 135 votes
    1y

    Here are my guesses but they're sort of shoot from the hip. Thus, consider them not as professional advice but rather as ideas to explore.

    1. I think you've basically been in the real property trade or business of being a real estate developer or redeveloper in 2024 and maybe in previous years. So, there's a chance you are/were a so-called "real estate professional." (A chunk of tax law, Section 469(c)(7) creates this status. And law says if you spend more than 50 percent of your time and more than 750 hours working real property trades or businesses in which you materially participate, real estate isn't automatically passive.)

    2. I think you need or needed to capitalize your development costs. E.g., if you bought a property for $100,000 and then over 2-3 years spent another $100,000 improving the property, what you do is think about that as a property that's actually cost you $200,000. If you place the property into service as a rental in year 4, for example, you plug $200,000 into your tax software as your cost. Not $100,000. (The $200,000 in this example would partly be land and partly improvements.)

    3. You probably can use real estate losses to shelter your investment income. And that's true even if you aren't a real estate professional. Why? You'll be able to apply the "active real estate participant" rule from Section 469(i). Your income falls within the band that gets up to a $25,000 deduction from real estate losses. And that's enough to shelter your $14,000 of investment income. HOWEVER...

    4. You'll probably be able to shelter your investment income with the $14,600 standard deduction too?

    5. Final comment: As pointed out by every other tax accountant in this thread, you probably want to consider getting a tax professional's help with this. I'd guess once you start talking with someone, you and they will discover there are other issues to consider. Getting an extension now and then approaching a tax accountant after tax season is a good idea.

    1Reply
  • Natalie KolodijBusiness Member
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    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    1y

    Were you living in the property from 2020 onward while fixing it up? 

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  • Aaron ZimmermanBusiness Member
    Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
    1y

    @Nate Pucel - as others have said, file an extension and hire it out.

    There's a lot of items that you could capitalize as part of the rehab in addition to the hard costs (mortgage interest, taxes, insurance). This will help you out if and when you sell the property. In the meantime, more depreciation will be taken. 

    As others have said, you can deduct up to $25k in losses, provided your income is below $100k without being a real estate professional. 

    I'm very confused about question #3. It would be a similar scenario to this property. These costs would be capitalized as part of your basis in the property and depreciated, assuming it's a long term rental.

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    1y

    @Nate Pucel You can’t deduct the property taxes and insurance paid from 2020–2023 on your 2024 return since the property wasn’t in service; instead, those costs should be capitalized into your cost basis and depreciated over time starting in 2024. Rental losses are considered passive and generally can’t offset capital gains from stocks unless your AGI is under $100K and you qualify for the $25K active participation allowance. If eligible, you may be able to use part of the rental loss to offset your stock gains. For your second property, since it’s not yet rent-ready, expenses like insurance and taxes should also be capitalized and not deducted until the property is placed in service. Be sure to accurately track and categorize expenses, and consider working with a CPA to ensure proper treatment and maximize deductions.

    This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

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