All Forum Posts by: Dave Holland

@Derek G. said.  Capital gains and rental income are two separate classifications of income so their rules are different. Also being that your taxes are cash basis as long as you receive the rent at some point during the year you will pay taxes on it in that year. It doesn't matter if it is in monthly installments or one lump sum.

I do appreciate you trying to think outside the box though!

@John McAuley

Yes you will still be able to use those expenses even if you do not end up closing on the property.  It works the same way as when you purchase learning materials, a computer, etc. that does not apply to one property specifically, but to your business as a whole.

@Jackson Long

All of the activity of the LLC (rent income, expenses, etc.) just get allocated to the members of the LLC based on their ownership percentage. You do need to file a partnership tax return (by default the LLC will be taxed as a partnership) or a corporation tax return if you've elected to be taxed as an corporation. Each member of the LLC will get a K-1 to complete their personal tax return.

@Ben Kirchner

Yes as other have mentioned on your tax return you'll file a Schedule E for rental income. Basically this form will summarize all of your rental income and the expenses giving you a net rental income which will appear on your Form 1040. It will be combined with all your other sources of income and taxed at whatever your rate is for ordinary income.

Just to your second point about how the income is viewed when getting financing, yes the lenders do like to see a "track record" until they will count it in your ratios. Just one more point to remember is they will typically add back depreciation which reduces the rental income on your tax return but doesn't actually impact your cash flow.

Mike Dymski I've never fully explored a solution to do that because I can do it relatively quickly (although not automatically). I do know there are developers for both AppFolio and Xero so I'm sure it's possible to do for a price even though it's not supported out of the box.

@Matthew Wright 

Yes in your case I would recommend Quickbooks. Online offers more flexibility obviously being able to access it anywhere but will be more expensive. 

@Matthew Wright

Here is what I recommend to clients, if you are buy and hold my favorite is Xero which is cloud based.  If you want lower cost you can buy Quickbooks desktop version (online is more expensive), or if you want free you can do it in Excel (I can send you a template I send to clients).  

If you flip you'll want to use Quickbooks, they have more options for tracking by project which is really necessary for flippers.

Dave

@Nathan S.

General rule of thumb would be if it is an expense and related to your real estate business then it will be deductible.  The vast majority will be obvious, and very few expenses will be questionable. My best advice would be to just check with your CPA in those cases where you really aren't sure or just post on here, there are quite a few CPAs who are happy to answer questions.

@Justin Fox

Cool that's really interesting, would like to hear more about it.

Yes this applies to all capitalized assets.  There is a de minimus exemption for assets under $2,500 though so you can expense them in the year purchased rather than depreciate.  This used to be $500, and obviously opens up a lot more opportunity to write off expenses as a lot of items you normally would capitalize like appliances most likely were more than $500 but under the newer threshold.

My best advice is to look at the resources here on BiggerPockets. Amanda Han's tax book does a  great job to break out the rules 9don't know about if it will be updated though) and there are a good group of knowledgeable CPAs on the forums that are willing to help as well.  If you have any other questions too you can ask away on here or use my email in my signature.

Dave

@Justin Fox

Yes  that is correct, if you replace the roof in year 26, you depreciate the new roof for 27.5 years.  For the first 1.5 years it will be in addition to the building depreciation, and then by itself for the following 26 years.  Although it most likely wont be by itself because I'm sure you'll have other capitalized assets that you'll purchase over the life of the property (appliances, remodels, etc), but just as an example.  

If you have to replace the roof again before its depreciable life is up, then you'll expense the entire amount left of the roof being replaced.  For example if you put on a new roof for $10k, and need to replace it after 165 months (which is half of 27.5 years) you would expense the $5k that you didn't get to depreciate yet on the "old roof", and begin depreciating the "new roof".

Hope that helps