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All Forum Posts by: Grant H.

Grant H. has started 4 posts and replied 17 times.

Originally posted by @Michael Lynch:

The deductibility of your full trip to your rental is not automatic; it depends on how many days you were there and how many were business days.

Thanks Michael.

I'm finding myself a little unsure of what to do. I had a very reputable RE tax firm quote me ~$1,700 to do my federal and state return, which seems high considering I am a w-2 employee, 1099 from a brokerage account and 2 duplexes. 

To add to this, I spoke with another CPA in Houston and asked him several questions about deductions vs. depreciation regarding my properties. He told me that the home inspection is a lost expense and nothing can be done with it, same as the appraisal. However, this is different from what I have read online. The following is the order of my rental property search.

1) Home inspection on a duplex in Houston, but canceled the contract due to issues that came up

2) Home inspection on a duplex in PA. Again canceled the contract due to issues that came up

3) Home inspection on duplex in PA. Ended up closing on this property.

4) Home inspection on duplex in PA. Canceled the contract due to issues that came up

5) Home inspection on a duplex in PA. Closed on the property

From my understanding, the home inspection on property #1 is void because I switched markets and did not close on a property in Houston. Therefore this expense was "not a part" of purchasing a home in this market. Moving on, the home inspection for property 2 can be applied to the basis price of property 3, along with the home inspection and appraisal for property 3. Therefore, property 3's basis price would increase by both of these home inspections and the appraisal when I am depreciating the property. The same goes for property 4 and property 5. Is this correct? 

If the above is correct, it again concerns me that this other CPA is not very familiar with RE tax and I should look for someone else. His quote was around ~$650 for my tax return. 

 Thanks for any help or advice. I have another lead on a CPA, which I came across on BP, but he is not in the Houston area. That is the only thing holding me back from going this route. 

Originally posted by @Joe Scaparra:

Is the home inspection deductible?

Absolutely!!! 

I initially had 1 vacant unit and had to cover the gas/electricity for 2 months. Are those utilities deductible?

Absolutely!!!

Do I need to report tenant covered utilities, like gas/electricity, as income?

If you pay them under your name then you can deduct that expense but claim all income from them or not claim the utilities and not claim their payment for them.   

I switched property management companies after 2 months, for various reason, and had to pay a cancellation fee. Would that fee be tax deductible? I know that the monthly PM fee is.

Absolutely and any other cost charged to you from the PM

I purchased the property without seeing it, but when I flew home over the holidays I went by to take a look. Could this allow me to deduct that plane ticket? I feel as if this is not the case but want to double check.

Yes you can deduct the plane flight and even few days of food expenses and or hotel/rental car cost if any.

I pay no state income tax where I live, but the property I purchased is located in a state which has income tax - I assume I will need to file with that state.

I believe you will have to file with that state.  But I have no experience with this issue.

I've done a good amount of research on what is a deduction vs. what needs depreciated but need more detailed answers on a few questions. Thanks in advance.

 Thanks Joe!

I had home inspections done on 2 prior listings, but both of them fell through. I imagine these inspections are deductible, too? I just need to figure out where to put those

As far as the utilities, I do not pay the utilities when the units are occupied. The tenants are responsible for putting the gas/electric in their name. So I imagine that these utilities can be ignored. However, I still pay the water/sewage and trash for the occupied units, which I assume means I can deduct these utilities. Basically, if I am paying the cost of a utility, and not receiving any money from the tenants in return to cover them, then I can deduct that utility?

I've been reading more and more posts on BP and might just have a CPA do it this time around. Although, it doesn't appear that is too complicated. Just need to have my income/expenses/depreciation correct..

Originally posted by @Jim Weigel:

If you earn income in a state with income tax you have to file. I would get professional help for your first filing. You can copy their work in future years. 

Trip cost to visit property, deductible. You meet with the tenants right? Keep receipts, etc. I am sure others will give the specifics.

Normally if you receive $ it is income. But in your case, you pay it back to the utility so you have an expense.

 Thanks Jim!

I did not meet with the tenants, as I did not want them to know who the owner was. I met my PM for the first time and he took me to the building. I only looked around outside and went into the basement.

I purchased my first duplex, out of state, over the summer and am now preparing to do my rental property taxes for the first time and have a few questions on deductions.

Is the home inspection deductible?

I initially had 1 vacant unit and had to cover the gas/electricity for 2 months. Are those utilities deductible? 

Do I need to report tenant covered utilities, like gas/electricity, as income? 

I switched property management companies after 2 months, for various reason, and had to pay a cancellation fee. Would that fee be tax deductible? I know that the monthly PM fee is.

I purchased the property without seeing it, but when I flew home over the holidays I went by to take a look. Could this allow me to deduct that plane ticket? I feel as if this is not the case but want to double check.

I pay no state income tax where I live, but the property I purchased is located in a state which has income tax - I assume I will need to file with that state.

I've done a good amount of research on what is a deduction vs. what needs depreciated but need more detailed answers on a few questions. Thanks in advance. 

Originally posted by @Lynn McGeein:

Most MLS listings also state "independently verify" so they are at least minimally covered by errors in the listing. I agree with others that if you're still willing to purchase the property, offer a price that reflects the repairs and lower rents you found out during your due diligence. All they can do is say No, and they might agree rather than put it back on the market, now knowing the repairs needed that might require disclosure and listing error, which they should have to fix now that you've pointed it out. It's better than just walking away.

 Thanks Lynn. I agree that verifying the rent rates is crucial, but not being told the property was section 8 and also being told I won’t be provided any documentation/leases/sd prior to an accepted contract makes things complicated. 

I guess where I messed up is not negotiating a time period, prior to my option period, for when the seller should provide this documentation so I know exactly what I’m buying before I start paying for inspections and putting funds in escrow. 

Originally posted by @Matt Devincenzo:
Originally posted by :
Originally posted by :

 Thank you Colleen. I don’t believe there was a way I could verify the monthly rents because they would not provide any documentation until they had an accepted offer. It just makes me question what you can get away with as far as misleading someone. If they can do this, why couldn’t anyone “tell” a buyer that the rents are $x when in reality they’re $y. It just seems odd. 

I think you will find with experience (which I realize you're currently working towards) you will find that you don't need or even really care what is listed as rent in the MLS. I can tell you in my area exactly what I would expect from a 1/1, 2/1, 3/1, 3/2 unit for rent....so if the listed rent is too high, even if someone is actually paying that much, it doesn't change my analysis. Then the question is better framed if I know I can get X/mo, but the condition of the unit doesn't support that how much do I need to spend to get that X/mo....the current rent is again irrelevant to that analysis.

I would interject that your agent should be able to give you an idea of what to expect as a reasonable monthly market rent, or put you in contact with a PM who can. I don't need an agent who can do that, but it seems you do and that should be a criteria you have in who you are choosing to work with. 

 Thanks Matt. I agree with everything you’re saying and you made some great points. 

I guess the reason it mattered to me is because it’s section 8 housing. I’ve read that increasing rent to what you believe is obtainable, isn’t always that easy because you need approval from the housing authority. I agree that if it wasn’t section 8, the actual rent rates should be irrelevant because I should know what the market should support. 

Again - this gets back to the issue of not being told that this was section 8 housing. I feel that knowing this, ahead of going under contract, is pretty important. 

But I also realize I have a lot to learn. Appreciate the input. 

Originally posted by @Colleen F.:

@Grant H.  As regards getting your money back,  I doubt it,  although that is a pretty blatant error you need to verify what is told to you. Question anything that seems obviously wrong before an offer.  I have seen houses with incorrect income numbers, description, even town.  Do what doesn't cost like verifying numbers before the inspection.  

If in your profile you include the state you are from or working in  it will get you more specific advice regarding the section 8 disclosure and other advice.   As for the 1 %  "rule" knowing where you are people can tell you if it realistically can be applied.  

 Thank you Colleen. I don’t believe there was a way I could verify the monthly rents because they would not provide any documentation until they had an accepted offer. It just makes me question what you can get away with as far as misleading someone. If they can do this, why couldn’t anyone “tell” a buyer that the rents are $x when in reality they’re $y. It just seems odd. 

But I will do that. I’m in Tx. I’ve been looking for ~3 months now and the 1% rule has been hard to come by, although there are some properties that cover this every now and then. But these properties usually become pretty competitive quick. If things don’t work out, I’ll need to rethink my strategy or possibly look in other cities/states and then use a pm to take care of the property. 

Thanks again

Originally posted by @Chris Mason:
Originally posted by @Grant H.:
Originally posted by @Chris Mason:

You spent $1300 on due diligence, and that due diligence revealed that this isn't the deal it was advertised as. That means your $1300 did it's job. This isn't "oh you wasted money on due diligence," this is "Thank God you did your due diligence and got your money's worth!"

No point in speculating/opining on if the listing agent did their job well. For your part, you didn't do anything wrong. You got your $1300 worth of due diligence and it saved you from a "surprise" or two after closing. That's what that was for. 

If you want to negotiate price down over the inaccurate information on the MLS, by all means do so. Any property is a slamming deal at the right price, so get angry/confrontational and go get that price! Maybe in the future that listing agent will be more accurate.

Overall this isn't super unusual. Information on the MLS is marketing/advertising.

 Thanks Chris. I agree with what you’re saying and the $1300 definitely did it’s job. However, I have an issue with something being listed as generating “$x of income” and then being told you don’t get any documentation/proof until you are under contract. Then when you’re under contract, you’re provided information that shows you the property actually generates less income than what you were initially told. To me, that’s blatant fraud. What do you think?

 What you or I think is irrelevant.

What is relevant is that you don't read/hear a lot of stories about listing agents successfully being sued for misrepresenting a property on the MLS. That's just not on the radar of "things listing agents and their managing brokers are worried about." Given how litigious our society is and how often info on the MLS is trash, I can only assume there are large numbers of lawsuits over exactly this, but if listing agents and brokers aren't worried about it, then those law suits presumably don't go anywhere (aside from generating fees/invoices that lawyers can send out to get paid, of course).

Similar example: you could argue that it's unlawful discrimination to deny a loan over FICO score. But I have 0.0000% worry about that. Which tells you that I as an industry insider never heard/read about any of my colleagues being successfully sued over it. Which in turn tells you that, no matter how good your argument or how strong your logic, it's a complete waste of time to sue a lender over FICO discrimination. 

 True. Good points. Thanks 

Originally posted by @Russell Brazil:

Due diligence costs are the responsibility of the buyer.  The tenants being section 8 is not relevant. In fact if you are in a location where source of income is a protected class, it would be illegal to actually disclose that.

 Thanks Russell. I will look into that and try to find out a definite answer. My agent made it sound like that information is required to be disclosed before going under contract. 

I’ve looked at several other properties and the first thing the sellers agent has told us is that they’re section 8. They always made sure I was aware of this right from the beginning. 

Originally posted by @Chris Mason:

You spent $1300 on due diligence, and that due diligence revealed that this isn't the deal it was advertised as. That means your $1300 did it's job. This isn't "oh you wasted money on due diligence," this is "Thank God you did your due diligence and got your money's worth!"

No point in speculating/opining on if the listing agent did their job well. For your part, you didn't do anything wrong. You got your $1300 worth of due diligence and it saved you from a "surprise" or two after closing. That's what that was for. 

If you want to negotiate price down over the inaccurate information on the MLS, by all means do so. Any property is a slamming deal at the right price, so get angry/confrontational and go get that price! Maybe in the future that listing agent will be more accurate.

Overall this isn't super unusual. Information on the MLS is marketing/advertising.

 Thanks Chris. I agree with what you’re saying and the $1300 definitely did it’s job. However, I have an issue with something being listed as generating “$x of income” and then being told you don’t get any documentation/proof until you are under contract. Then when you’re under contract, you’re provided information that shows you the property actually generates less income than what you were initially told. To me, that’s blatant fraud. What do you think?