My First Experience with REI Taxes

So here I am one year into house hacking my first duplex. The short journey has taken me a long way from buying my first duplex, getting my RE license, collecting rent for the first time, and paying for a number of items for the first time.

A lot of firsts and tax time done right is a time to look back at how profitable your investment has been and a look back on the year. It’s also a painfully frustrating process of collecting everything you need to report. Fortunately I am a meticulous record keeper (my day job is in Quality Assurance), but unfortunately I knew nothing about the best way to organize everything. I just wanted to provide some lessons that I learned from this first experience.

• 1.It’s great to keep receipts and document mileage for expenses, but it’s not easy to organize these. Next year I am going to take pictures of every receipt and file it away. Also, manual mile tracking is a pain (I was recording agent mileage every day in an email for documentation). This year I’m just going to pay for MileIQ.
• 2.Excel is fine and dandy, but I spent more time documenting more than I needed to. Next year when I save receipt images I am just going to save them by a standard code (DATE-Sequential Letter) and then reference that in my spreadsheet along with expense category, price, and a note about what it was for.
• 3.I learned about how house hacking taxes can be more complicated with a duplex. You can only deduct half of roof expenses/shared items and if you own it with someone else you only get half of that.
• 4.I learned that since I own my duplex with my girlfriend Anna that we should discuss Real Estate over dinner out far more frequently than we discuss it over home-made dinner.
• 5.I learned that not all closing costs are tax deductible (originally I thought they were)
• 6.I learned that depreciation deductions are wonderful and if you make improvements you should document them well so that you can consider deducting individual items (although for now I’ll just keep the standard).
• 7.The interest paid on a mortgage kind of stinks, but at least you get a deduction for it.
• 8.The lines between a repair and capital improvement are somewhat gray and hard to define.
• 9.A good accountant is wayyyyyy more valuable than turbotax and far less annoying to use.
• 10.Not really taxes, but having a tenant pay for most of my housing expenses is really nice and makes saving super easy!

Those are some things I’ve learned about taxes from my first year in Real Estate Investing. Here’s to next tax year! Hopefully my tax bill is a little bit higher because guess what that means….I made way more money (or I screwed up documenting deductions, but let’s not think about that)!

Leave comments if you’ve learned anything new or if you have any good ideas to implement in tax savings plans for 2017!