All Forum Posts by: Kevin Schick

Jmac,

I was referring to however you track your bookkeeping of the property. Until you actually do something with the property, i.e. put it into business use, you can't deduct anything as a business expense on it. So you just keep adding your costs into a big total. After it is put into use, then you start depreciating the total cost over 27.5 years.

Probably the best thing for you to do is print off IRS Publication 527, and then also just try to search on the internet for "rental depreciation" and you can pick up what you need to know.

I will PM you about Indiana Cash Flow Properties.

BMR

Rental is definitely put into service 2/17. During the time from purchase to in service date, it's just a house you own, and all costs go to the accumulating capital asset account that you have for it. In regards to insurance, taxes, etc, you can prorate them accordingly, by creating something like a fake escrow account, but for simplicity i just record them for what they were at the time of the expense. It is just easier.

Basically everything you spend prior to putting it into use is not considered an expense.

BMR

In regards to the improvments you made on the foreclosure property. Anything you did prior to the property being ready to rent, are considered part of the basis for your property being put into use for earning income. Since all of these repairs appear to have been needed to make it habitable, the IRS is correct in saying they should be lumped with your purchase price, and depreciated over 27.5 years.

If a year from now if you remodel a bathroom, then that would be depreciated over 5 years seperate from your original purchase/rehab costs.

The loan you obtained on your original rental condo, is attached to that rental property. Loan costs on rental property is depreciated over the life of the loan, NOT the life of the property. So if it is a 30 year loan, then you depreciate straight-line 1/30 of the cost each year.

BMR

My understanding is that the IRS will consider you to have taken the allowed depreciation each and every year, regardless of whether you actually take it or not.

When you do sell it, that expected depreciation will be factored into the gain on the property.

I'm pretty suprised your accountant is telling you to not take your depreciation each year. From what I have seen there is really not a lot of wiggle room on it.

I relation to depreciation and rental properties, I think I have a pretty good handle on how the IRS regulations work.

Purchase price and repairs up to the point property is placed in service, are the base 27.5 year depreciated amount.

Additional repairs/improvements after it is rented are depreciated based upon placed in service date and type of improvement.

Question:

In general would grouping similar capital improvements by quarter be acceptable, or by month, versus tracking each improvment to it's exact in service date.

I have a new rental, that is fully leased, but there are still capital improvements being made. I don't want to be tracking 10 different depreciating improvement items forever. I guess I could do monthly groupings since that is the minimal period that the depreciation schedule is based upon.

Thoughts?

From a fellow Indiana investor, welcome.

We have not made it that far North to your area, as we primarily have been focusing on the areas of Bloomington, Anderson, Huntington, and Terre Haute!

If you are patient and careful, there are a lot of opportunites in Indiana to be had ...

BMR

Could you explain this a little more. If I transfer a personally owned investment property to my single member (disregarded) LLC, it makes sense there is no tax consequence.

But what about possibly transferring a personally owned property into an S-Corp where I am the 100% shareholder. Same concept?

Or transferring an S-Corp owned property, into my LLC?

The biggest benefit I have seen from filing on tenants that did not pay, is that for some of them, they will come and work with me in coming up with an out-of-court repayment plan, instead of having the black mark on them.

If you have a patient consistent non-emotional attitude with a lot of people, they will see the logic in gradually paying you back over time. Most of them are eager also to not be dealing with your property manager any more, as usually when they left your property, it was not under the best of terms.

Just my take on it, but if you are reasonable, patient, and willing to flex a little on forgiving the late fees, or giving them a break, they will work with you.

I also take a look at what amount I would end up with after using a collections agency, and then negotiating an out-of-court settlement based upon that $$ amount. It gives the ex-tenant a good feeling knowing they are getting a break, and you are getting at least if not more than the same amount.

> BMR

Ok, admittedly I am from California, and we drag out our winter coats when it dips below 50, so we don't use storm windows out here, and I am still trying to figure them out. But my properties in Indiana have them and they need to be replaced.

What has people's experience been in terms of just getting new energy efficient windows installed instead of using storm windows and having to pay to have someone put them up and take them down every year.

I do pay the utilities on a 6 unit converted house, and the bills are high, so I am thinking it might be worth it to just convert over to the newer windows and not mess around with storm windows any more.

> BMR

As my father and my father-in-law both entered the retirement stages of their lives, I saw the wisdom in how both of them had acquired some sort of secondary real estate related income property. And how after all the years it was now rewarding them substantially.

Also after the whole dot.com stock craze of the recent years, real estate (which you can actually see and touch) was a much more slower and tangible investment option.

Would I do things differently after 3 years in the game, absolutely. But I would still do it, definitely.

BMR