I want to do taxes the HARDEST way possible. (with questions)

[David Zheng]

So in my first year of investing, I've bought 8 properties from condos to sfh, to multifamilies. All are rentals. 7 are in my personal name and the eighth property is under my solely owned LLC

I am literally leading myself to the slaughter because I want to learn the ins and outs of real estate taxes by doing these myself. I have a couple questions before I go through this pain though.

1. Do I need to prepare a separate statement for my individual tax returns and my business one?
2. Besides knowing all current rents, Mortgage insurance/interest, HOA fees, expenses, rents, property taxes, what else should I have ready? Everything I track in Excel
3. Do I just use the appraised value of the property for depreciation? So if I bought a house for 275k (lets say it appraised for 275k) and closed Aug 1, is the depreciation just 275/27.5*(5/12) I read somewhere I needed to separate the building appraised value and the land?
4. Recommendations for the most user friendly software? I used TurboTax and I like it a lot.
5. whats the hardest part about doing rental taxes? Is it just locating the numbers or am I missing something?

Hopefully questions answered here will help with other first year investors with these questions!

Thanks!

[Jim Kennedy]

David,

I am an experienced real estate tax accountant who worked for the IRS as a Tax Examiner and later in the Criminal Investigation Division, I taught college level tax and accounting and now like you owns and operates a series of residential and commercial units in and out of NJ, my home state for almost 13 years and like you own the residentials personally and the commercial ones in LLC's. Sounds like you've been doing a lot of homework only to find the more you know there more there is to know!!

1. Nobody mentioned maximizing depreciation through cost segregation which I do for myself and my clients. 
2. To do that you have to understand the basic concept of depreciation. 
3. Plus you may or may not be a real estate professional under IRC sec 469(e) et seq.  You need to learn what that's all about. 
4. You also need to understand passive activity loss limitations, related income limits and the carry forward amount of Federal form 8582. 
5. Then there's the discussion about entity comparison and contrast to see if you are in the right type of entity. There is no one size fits all answer. Instead it depends on your unique economic facts and circumstances.
6. Definition of "ordinary and neccessary expenses" under IRC Sec 162

It is practically impossible to get up to speed on all this in one tax season filing. the expertise I have accumulated and share in consultation with clients has taken me two decades to amass.Your questions asked are indeed good ones and show you are thinking, but there's all this other stuff to think of. 

Like I said, I have bought and and hold over a million dollars of commercial and residentials. I am a 12 year member of my local REIA (SJREIA) Tonight I I was the guest lecturer for 41 investors, discussing my plan to evaluate sale price, cash floe, and how to retire from a 21 year real estate plan with over $1,000,000 in the bank and $64K-$73K interest and saving over $762,000 of interest expense in the process! I did the same seminar on Saturday, but it was 4 hours. I barely got into depreciation at all.

Get mentors. beware of programs for 10,20,30 thousand dollars. In my 12 years with SJREIA I pay $495 annually to be a CPA business associate and I've learned a lot from the SJREIA, and 2 other local ones, plus good ol' Youtube. The sign of a smart person is not somebody who knows everything, but somebody who knows where to go to find everything!