Last year I bought my first two rental properties in Michigan. I've been keeping paper receipts in folders all year (gutted and rehabbed them), didn't really have the time earlier to do anything else with them. Now I need to organize it all to give to my tax person. I had a small used car dealership years ago and the taxes seemed much simpler then. I hate everything involved in doing taxes, I gladly pay my CPA to do them for me. To put it bluntly, I want to do as little as I can with all this paperwork/receipts without being burdensome to my CPA. Homes are owned in my personal name and not as an LLC.
I've read somewhere (can't find it now) that expenses should be organized by the categories that the IRS defines. I assume I should at least do this. I also remember reading those categories and not seeing where the cost of tools went, I think there was a sub category for tool rental but not purchase of new tools. Again, from memory. Where can I find those categories?
What about things I don't have a receipt for, like paying a kid down the street to mow the lawn and shovel snow? Total cost over the year was probably less than $200, in $20 increments. Paid Cash, no receipt. I take it this isn't deductible?
Do I need to submit expenses broken down by house? Or all combined? If by house, then how to categorize things that apply to both houses like tool purchases or say, an umbrella policy?
Here's a big one... online purchase receipts. I don't want to print all these receipts out from emails. What do I do with all those receipts? Take screenshots and give them to the CPA in a zipfile?
Capital Expenditure questions... I just gutted and rehabbed the entire house before tenant moved in, I assume ALL of that is capex? Of course there are other expenses like pest control, etc but as far as things that would normally be repair/maintenance, like plumbing parts to replace a leaking hot water heater hose, are now capex because they are part of a brand new hot water heater install or a bathroom remodel? It's a bit confusing. Will the tax person know better, and should I leave it to them to categorize which receipts as which expense type? This wouldn't always be obvious though with the cryptic names items are sometimes given on receipts. Hell I don't know what half the items are anymore when I look at the receipts.
The whole depreciation thing... how/where is all of this stuff being tracked? Is there a form my CPA files that I get back which will tell me how much has been depreciated already and how much I can deduct for depreciation the next year? Seems like a LOT of crap to track... windows, hot water heaters, electrical panel work, bathroom remodel, kitchen remodel, etc. This just seems daunting to me to keep and track some sort of breakdown for each individual thing that needs to be depreciated over time.
I've been keeping a mileage log for driving since I bought the houses. Every time I drive, I categorize my entry as personal, commute or business. I live 24 miles each way from the homes (they are right next door to each other). 99% of the time when I drive from home to the houses it's for rehab work, at least until I finish the second house. I am under the assumption that the drive from my house to the rental homes is considered a commute and is NOT tax deductible, is this correct? Os it it tax deductible under certain circumstances, say a tenant is locked out and I need to open the door? I know that my drive from the rental homes to Home Depot, etc it's considered business, but that's basically all I've been counting as business... drive from the rental house to anywhere for tools, materials etc. Just wondering what else is considered business. What if I leave from my own house to buy a used washing machine from craigslist, is that business? Is the washing machine a write off if I pay cash for it and get a hand written receipt?
I just need a little help getting this all going, and making sure I don't piss off my CPA. Also, I'd like to get some sort of system in place to make this suck less next year. It sounds like a lot of extra work scanning receipts and labeling all that stuff digitally though. Does that really save any time from just going through a stack of receipts at the end of the year and adding them all up?
