We have been reading and learning about real estate for a couple of years, and just bought our first property. Now that we are able to put the learning into practice we are discovering much that we don't know. :)
Should we be setting up a separate bank account? My understanding was yes, but this is what our accountant said today:
"Sounds like you’re already on the right track by keeping separate bank accounts. Since this will be 100% rental (assuming no personal use), then the record keeping will be easy…all expenses will be deductible or capitalized.
While you may be thinking of the rental property as a business, it’s usually considered an income-producing investment, not a business. That’s a good thing because it’s only subject to income tax and NOT self-employment taxes.
Rental property only becomes a business when a substantial amount of your time is spent on a regular basis managing and taking care of the properties. It can also become a business when rental properties become your primary source of income or you have several rental properties and you spend your time managing/caring for those properties.
I would not try to make your rental property a "business". So you wound not create an LLC or other business entity to hold rental property.
You also should not open a business bank account for the property. Just open a separate personal bank account that is used only for the rental.
No need for an EIN unless you plan to pay wages to someone for managing or maintaining the property."
Is this correct? Essentially, we are good as long as we have a separate personal bank account to route everything through? We want to make sure we set everything up properly.
