All Forum Posts by: Stuart M.

Say for 6 months in 2020 and 6 months in 2021 the mortgage on a SFH investment property was deferred under a CARES Act forbearance. 6 months into 2021 all the deferred interest and deferred principal were added to the back of the mortgage maturing in a few decades at 0% interest (the deferred RE taxes and property insurance were required to be paid back over 5 years at 0%.)

The 1098s have the full RE taxes listed on each of them. But they only have half a year each of mortgage interest listed on them. When is/was the proper time to expense the mortgage interest (and RE taxes and property insurance)? In the year it was accrued (even if on cash basis)? In 20 years when mortgage is paid off? What did everyone do?

Your goals and story: We bought a SFH in FL we rent out. We want to keep renting it out. Renovations were expensive. We are always looking to reduce our costs (interest) while maintaining flexibility if possible. This is the only SFH we own (we rent a cheaper place ourselves.)

Type of property: Single family home.

Location of property: Boca Raton FL.

Purpose of financing: We have a first mortgage and small HELOC. We want to refinance the HELOC (to include a personal loan.)

Type of financing sought: HELOC with outside chance of cash-out refinance instead.

Current or prior ownership of real estate: This is only property we own, we rent where we live. We've owned it for 5 years now.

Occupancy: Yearly leases with great tenants who generally prepay large amounts. We have rented it out for 2.5 years now but have collected all 3 years of rent already.

Value of property at present and/or your offer price: $720k XOME appraisal

After repair value: $same

Anticipated or actual appraisal issues: no, received XOME appraisal above

Current rents per month: $4.2k

Fair market rents per month: closer to 5k but current agreement runs through 1.5 years from now

Down payment or equity: owe 341k + 53k = 394k.

Income Source: W2 income with small base and large comission.

Gross YEARLY income (optional): $150k-200k (130-180k commission 20k base) in years where there isn't covid or not having a child, for 9 years now. Covid (2020) brought it down to 75k for that year because closed for half the year. We had 2 years where we had kids and lost 25% of income cause we chose to take off 3 months unpaid and could afford to (2019 and 2015.)

Monthly debt obligations appearing on credit report, plus (if applicable) personal rent and alimony/child support/etc: $2.5k rent not on CR, $2.8k mort on CR (this property), $.8k HELOC on CR (this property), $1.6k personal loan on CR, $1.3k other on CR.

FICO: Excellent.

Credit issues: None.

Additional details: The problem is the rest of the renovations are in a personal loan so I have high DTI - I think! What I can't figure out, is how is my rental income being counted by lenders and how is the mortgage being counted by lenders when they are running numbers for HELOCS or cash out refis? Are they adding my rental income to my personal income and then adding the mortgage amount to my debt payments, and my total income has to be twice my debt payments? Are they adding the difference between the rent and the mortgage to my monthly income if its positive or debt payments if negative? How are they figuring in my current HELOC? How are the dealing with depreciation on my tax return? Are they using some other formula? Are they just using a percentage of the rent or something? The process is so opaque I don't know what numbers they expect. I applied to Penfed and they just flat out rejected me but won't tell me anything. (The second level of processors changed the income on my app to something dumb like 2k per month instead of the 200k I made this year - so, basically base salary, and discounted all commission - and won't return calls, emails, or tell me who their supervisor is.)

I would prefer the HELOC due to the ability to only pay interest when you are using the funds as opposed to a cash out refi and then having all that money sit in a bank while we are paying back interest (plus the higher costs make it less likely to pencil out given the low HELOC rates.) But if a HELOC is impossible I'll take the latter cause i'm paying 8% in a personal loan right now for the rest of the renovations. But at 80% on the property i should be able to get something like 180k HELOC out of it, pay off the old HELOC of 53k and 80k in PL, and have room left over. I mean, I collect 200k in W2 income and 51k in rent, you'd think they'd figure it out somehow, but i guess "not simple" is not something people want to deal with right now. But I want that 8% down to ~4% where it should be. The other HELOC is from SCCU but the minimum payment per month is absurd, and it would be ~2.8k on 180k if I got a larger HELOC, that doesn't help at all (it would be more than my personal loan and current HELOC combined.) A Penfed HELOC should be under 1k/mo but again, rejected.

We have like 20 months reserves available (401k etc.)

I have a house that the mainline gets clogged occasionally (it has been scoped, there is nothing wrong with it) but it always seems to be at noon Friday and then by the time you get a call its 6pm, and you're stuck with after-hour rates all weekend, etc.  Does anyone have a plumber that has gives you two agreed upon rates - business hours and after hours to clear a clog - and how did you go about finding them and agreeing to these rates?  There isn't some forum where I can post "hey this is the address, give me two prices, plumbers" and get a response.  And there business usually doesn't work like this - they wait for calls then go respond.  Anyone successful in setting something up in advance?

@Michael Plaks

Would appreciate your response, as we do not have a closure

Circling back around to this, it turns out I do not in fact like to cut corners nor do something that is not technically accurate not do something close enough. What would the "technically accurate" solution to this be? Again its weird to me that these common issues (buy a property in 2018, put in service in 2019, how do you deal with PMI in the technical, accurate way, when the IRS says don't add it to the basis) don't have an answer agreed upon and instead people rely on inaccurate, technically incorrect maneuvers instead. This has to apply to thousands, if not millions of rental properties a year!

(Is the answer, amortize them on the 4562 over the life of the loan starting in the latter year when the property is placed in service)

I am more confused now.  I am not referencing his new porch, drywall, rewiring, etc.  I am not asking about carrying charges (this time.)  I am specifically asking about these sentences you wrote, reference to tools only:

"@Dawn A. is correct in that your lawn mower and tools etc, would not be added into the home's basis; however, they would have their own that must be depreciated separately. It is distinctly possible these were placed in service before the property was.

Tools such as a lawn mower and snow blower would be 5 year property. Item such as a screw driver and drill bits would be immaterial and deducted as an expense."

If a $600 saw is placed in-service in November and you place the rental property in-service the following February, how do you account for the depreciation of the $600 saw on your tax forms?  I am told your initial schedule E for the property is for the year that you place the property in-service, which would be the latter year, so how do you expense the depreciation of a $600 saw placed in-service the prior year, and when do you do it?  In fact you could put a tool in-service a month, a year or even two years prior to placing your first property in-service if the renovation takes that long!  And you could have $5000 in tools...

Bringing this one back from the dead.

You state "It is distinctly possible these [tools] were placed in service before the home was."  If your *first* rental property, and tools, were purchased in November, the tools were placed in-service in November, and the property wasn't placed in-service until February, how do you depreciate/expense the tools, and when?  Do you file a form 4562 for the first year, even though you don't have a schedule E until the latter year, and where would you put the depreciation expenses if not on a schedule E?  Or do you file a schedule E for the first year even though the rental isn't in service until the latter year?  Do you wait until the latter year, file a 4562 and a schedule E but put the previous years dates for the tools in-service and "catch up" on their depreciation?  Can you 179 or bonus depreciate these tools in the first or latter year, even if you have no rental income in the first year and your property isn't in service in the first year?  (And I'm talking a real tool, say, a $600 compound mitre saw, not a screwdriver.)

What is the mechanism, basically, to depreciate/expense these tools in a year prior to placing your property in-service?  I've searched high and low for an answer to this, and this is the closest reference to an answer I've seen.

 Oh please. Your post was condescending and insulting, and did literally nothing to advance the discussion. Maybe you will learn something about interacting with others - everyone else refrained from personal insults and was sticking  to the topic - but I have my doubts. I do appreciate the irony that you are crying over a post that when read literally was not insulting; I figured you would recognize your work. On the other hand I cannot understand what it is you think you’re accomplishing spending time on the internet making these posts. Finally, I’m not going to speculate as to whether or not you are as condescending in person as I have no basis to do so. 

You know I'm getting real tired of some of the CPA's here who spend their days telling others that they aren't going to help.  You come on this site and every other trade shares their knowledge and helps each other out except a selection of CPA's who come here to tell everyone they know the answer but they get paid to tell the answers so they're not going to.  You go on any programming website and you never get programmers who go "ahh, yes, see, I know how to solve your problem, and this is why we get paid to program."  You could have answered any of the questions I've asked on here in half the words you just wasted your time writing, including some the necessary caveats.

So if there is a "block" button on this website, you should use if for my posts.  Go spend some time with your family, I'm sure they'd enjoy your company, you seem like a wonderful person.  Seriously, what kind of sick person wastes their time going on websites to tell people they know the answers to their questions but aren't going to answer them, especially when you claim to have some sort of sympathy for the situation I'm in (which you clearly don't.)

I think I misread what you were saying late last night and I was trying to respond immediately, I think I had it exactly backwards.

My understanding now is that I must deduct real estate taxes for my NOT in service rental property on schedule A, unless I had made an election to capitalize them on my original return (or within 6 months of due date on an amended return).

Is that correct?

Besides RE taxes, what other items are in this same boat, "carrying charges," that MUST be deducted the year they are made, unless elected to be capitalized?  Utilities?  I see no line on Schedule A for these. What schedule would you put them on if you didn't have an in-service property because you were still rehabbing as of December 31st?

And you can't do this for the mortgage interest and other loan costs, correct?  They must be amortized over the life of the 30 year mortgage?  That goes on 4952 or 4562?  Starting in the year you got the mortgage, or is all of this added to the basis for some reason instead?  Do you have to make an election here?