All Forum Posts by: Renee H.

@Jeff T. Unfortunately, my CPA doesn't know real estate and I'm certainly looking for a new one. But because the deadline is next week it is impossible to find anyone who could do or go through your taxes, so I'm scrambling to prep everything myself in the best way possible given the circumstances. Really hoping this community could help!

I just figured out how to tag people so also wanted to say thank you again @Natalie Kolodij for the reply, it was very helpful! If you're willing, I have a few follow up questions to ask you. :-)

Thank you so much for the reply @Natalie Kolodij ! Unfortunately, I’ve only just come to realize that my CPA is not very proficient in real estate and doesn’t know all the details, making it much more complicated to file taxes now with me doing lots of research. That’s why any information from this community is very helpful for me to make sure that everything is being filed properly.

Could you help to better understand some of the answers?

1. Can I expense materials the same year as I was doing all the work myself and the majority of work was mostly fixing non-working, absent, hazardous or leaking things (stairs, faucets, some plumbing/pipes, electrical, non functional door handles, some trim fixing/replacement, painting, blinds) in order to bring the place to rentable condition?

• - Would this change if the repairs were made between tenants or during tenancy?
• - Should I put those expenses under repairs or do I need to use bonus depreciation or De Minimis Safe Harbor or Small Taxpayer safe harbor?

2. What qualifies for bonus depreciation deduction?

• - Do you always need to do cost segregation? I still don’t understand this - would be grateful for the clear explanation.

• - Do I need to expense each item or material separately? In my case, I just have supplies and tools for repair projects.

3. Would placing LVP be considered an improvement or I can claim it as a repair when replacing very gross, stained, smelly carpet with holes in it and a rough subfloor (not possible to refinish)? I did all the work myself, just purchased the supplies.

• - You said that it might qualify for a bonus depreciation, could you elaborate on this more?

4. A couple of windows had broken jambs and glass and I had to replace them (I tried to restore them and repair the jambs but it didn’t work). Will this be considered a repair (as I didn’t replace all windows, only ones that didn’t function) or improvement? Did the installation myself.

• - If the replacements were made between tenants or during tenancy?
• - I’m reading that if you replace one or two windows (not all of them) you can expense them as repairs? Is this true?

5. How can I allocate tools I bought to do the work? Drill, nail gun, saw, bits, blades, work light, dolly, shop vac. Can I expense them right away or should I capitalize them?

• - You said to expense them, should I put them under repairs or tools?

6. Not sure what I should do with a trailer and accessories (hitch, ties, a coupler lock, moving straps) I bought specifically for the rental business to carry supplies? Should I expense it or capitalize? How many years?

• - Could you help to figure out where I can find lifes of those assets?
• - Can I expense accessories as tools or should they also be capitalized?

7. And just to double check that I found the correct information, I can deduct PMI in addition to my mortgage interest?

• - PMI was paid as an addition to my mortgage and during 2020 the building was fully rented out, thus I assume the mortgage interest should be deducted in full as well as PMI. Please let me know if I'm wrong.

Hello, a little bit of a long post with a couple of tax questions :-) I'm looking for some help as I've become increasingly confused around taxes!

Crossing my fingers someone could help me find answers to questions that have been bugging me. I’ve begun to grow skeptical of my accountant’s advice (some of her suggestions completely contradict lots of advice I’ve read on this forum), and I was hoping to get someone else’s perspective.

Background: I purchased a duplex in 2019, rented out one unit and occupied another side.

Starting from 01/01/2020 I no longer lived there but continued to do repairs as the unit was not in great shape when I bought it. Most of all the repairs I did myself. In August 2020 I rented out the second unit. Not a real estate professional yet, unfortunately :-(

Questions:

1. 1. Should I add the other unit as a separate asset and take depreciation starting from 01/01/2020 - Date of Conversion (as I moved out in December 2019)?
2. 2. What cost basis should I use? For example I bought the house for 200,000 (40k land included) and was depreciating the unit 1 based on 80k ((200k-40k)/2). But in Jan 2020, the fair market value for the house increased. Should I use the original purchase price as my cost basis or how can I show that the value of the house increased? For example Zillow analysys or a value (rate increase) from the city property tax statement?
3. 3. Can I expense materials the same year as I was doing all the work myself and the majority of work was mostly fixing non-working, absent, hazardous or leaking things (stairs, faucets, some plumbing/pipes, electrical, non functional door handles, some trim fixing/replacement, painting, blinds) in order to bring the place to rentable condition?
4. 4. Should I expense those materials using bonus depreciation, or the De Minimis Safe Harbor or they can only be capitalized?
5. What qualifies for bonus depreciation deduction and do you always need to do a cost segregation? Do I need to expense each item or material separately? In my case, I just have supplies and tools for repair projects.
6. 5. Would placing LVP be considered as an improvement or I can claim it as a repair when replacing very gross, stained, smelly carpet with holes in it and a rough subfloor (not possible to refinish)? I did all the work myself, just purchased the supplies.
7. 6. A couple of windows had broken jambs and glass and I had to replace them (I tried to restore them and repair the jambs but it didn’t work). Will this be considered a repair (as I didn’t replace all windows, only ones that didn’t function) or improvement? Did the installation myself.
8. 7. How can I allocate tools I bought to do the work? Drill, nail gun, saw, bits, blades, work light, dolly, shop vac. Can I expense them right away or should I capitalize them?
9. 8. Not sure what I should do with a trailer and accessories (hitch, ties, a coupler lock, moving straps) I bought specifically for the rental business to carry supplies? Should I expense it or capitalize? How many years?
10. 9. Is it possible to expense a lawn mower (new), leaf blower (used, purchased on Facebook marketplace) and snow blower (used, purchased on marketplace) or do I need to capitalize them? What method should I use?
11. 10. And just to double check that I found the correct information, I can deduct PMI in addition to my mortgage interest?

Thank you so much for all your answers!

@Ashish Acharya thank you!!

Hello everyone!

I'm reading a lot about passive vs non-passive rental activities and cannot really find a clear explanation.

This publication from the IRS says:

1. "Material Participation: A trade or business activity isn’t a passive activity if you materially participated in the activity. Material participation tests. You materially participated in a trade or business activity for a tax year if you satisfy any of the following 7 tests."

2. In the same article under the Real Estate Professional section it says: "Generally, rental activities are passive activities even if you materially participated in them. However, if you qualified as a real estate professional, rental real estate activities in which you materially participated aren’t passive activities."

So in the same publication as far as I can understand, the IRS provides two conflicting viewpoints. On different websites, you can find pretty much the same: sometimes articles say that only Real Estate Professionals (if they qualify and pass a Material Participation test) can take rental real estate activities in which you materially participated as non-passive activities. But others say that there are 3 categories: Active participant, Material participant and Real Estate Professional, and you can treat your passive losses as active if you pass either Material participant or Real Estate Professional test.

My accountant thinks that a Material Participation test would be enough to use the losses from my rental activities to offset our W2 income (we are filing jointly).

It would be great if someone could shed some light on this topic and help to answer the next two questions:

1. Can you treat your losses from rental activities (passive activities by definition) as Non-Passive if you only pass the material participation test (one of the 7 tests according to IRS)?

2. Do you need to group together related businesses as a “single activity” (469(g) election: by filing a statement with the taxpayer's original income tax return for the taxable year) if you have 4 duplexes in order to pass a Material Participation test? According to IRS: If you participated in the activity for more than 500 hours you satisfy one of the 7 tests. Does that mean 500 hours per building, unit, or per all your properties combined?

Thank you in advance!