Schedule C Or E?
I am placing a rent house I used to live in into service in 2004, however, I incurred some advertising expenses against in in 2003. I also bought some tools to be used for property management/maintenance. I did not have any rents from that property in 2003, though I did have $66 from pasture rental on another property so I did have to fill out a Schedule E for that property already. My question is, should I even list the rent house on schedule E and can I deduct the tools against it (section 179 deduction)? Or should I just fill out a schedule C for property management business and record the losses (advertising and tools) on that?
Going forward, I will have both rental revenues on rent house for 2004, and property management expenses. I will have to fill out a schedule E next year, but should I pay myself a nominal fee for property management deducted on the E and recorded on the C form, so I can deduct section 179 property or is there a way to do that on schedule E.
"Placed in service" means that the property is ready and available for rent. It does not mean necessarily that the property is tenant-occupied.
If you began advertising the property as ready and available for rent in 2003, then your property was placed in service in 2003.
Take the Schedule E deductions you are entitled to (to include depreciation from the date you placed the property in service).
I suggest you just consider the tools a personal expense. You did not tell us what you purchased, so I am assuming that you purchased general purpose tools (hammer, screwdriver, etc.) which will also double for your personal needs and will most likely remain in your toolbox after the property is sold.
Also suggest you decline to charge (yourself) a property management fee. A deduction on your Schedule E is income on your Schedule C. Not only will your Schedule C income be taxed to you at your ordinary income tax rate, but your net income is also subject to self-employment taxes on Schedule SE. Most likely, you will end up paying more in taxes than you will save by taking a Schedule E deduction.[ Edited by DaveT on Date 04/05/2004 ]
Hey DaveT,
I've heard of how some investors hold their properties in multiple LLCs or trusts but then have their own property management entity (an LLC generally I believe) actually do the managing for all of the props. This prop mgmt LLC would collect rent, rent the properties, pay the expenses, etc.
Are you or others familiar with this approach?
The reasons for this is b/c we don't want to maintain an entirely different property mgmt entity for each LLC that holds properties and it's also cumbersome to manage a complete set of books for each property-holding LLC.
By running all of the expenses and revenues through the prop mgmt LLC, that single LLC reports the net loss or gain to the property holding LLCs as aggregate figures. So this would save having the property-holding LLCs from having to record every single little transaction.
But, I'm not sure how this would work exactly. For example, would the prop mgmt LLC necessarily have to file sched C? And would there be any constraint for how much (or little) the prop mgmt LLC could charge?
No, I'm not looking for any tax advantages.
The reasons I cited above are for simplicity primarily (see above). Though, as you state, there could be an additional liability shield for the entities that hold the properties to the extent that the property mgmt aspect of the business could cause some sort of liability.
I'm mostly looking for how people handle the books for this type of situation. I know how to manage the books but I'm looking for a creative solution to how to orchestrate this.
<<I probably should have first posted this in the Landlord forum but I made the mistake of posting it here first since it was a follow-up to the original question. Does anyone know if you can move a post to another forum where it would be more appropriate and possibly get additional responses? Or, does anyone know, if I were to delete my post here, would I be allowed to post in another forum without getting busted for double posting? I couldn't find a reference to this type of situation in the rules.>>