Taxes And What I Wished I Knew Before
I just finished doing my taxes for an investor business and a rental property.
I bought a rental and like many people thought that ever penny I spent on the thing would reduce my income as a deduction.
I wished I knew when I started that the IRS will limit your dedcutions on things that materially increase the life of the building (roof, windows, etc) forcing you to depreciate them over the 27.5 year timeframe of the building. Also, they will make you do the same for the repairs you do to the building prior to actively seeking to rent the property.
I found out that the carpet I put in prior to advertising would be on the 27.5 plan and not the typical 5 year depreciation because of this. The good news is that I started advertising quite early so I could take many other repair expenses as repairs at their full price.
I also found out that if you have 40% or more of your business expenses (excluding the actual RE) in the fourth quarter, you must use lesser Mid quarter method of deprecaiton and not the better mid year method. This really means that you should view 9/30 as the deadline for any big purchase that you will have to depreciate
Hope it helps somebody out there.
Scott
Carpet is 5 years. Also, cabinets would fall into the 5 year depreciation life. You might want to amend your tax return and break out the 5 year life items to save some money.
Goto www.irs.gov and search for Publication 527. On page 11 talks about carpeting and other time lines for depreciation. Read the entire publication (30 pages or so). This is what the CPA will use.......Also read publication 925 and make sure your CPA knows you manage the property (as long as it is not in a LLC) and work on real estate activities for 30 hours a week........ Cha-Ching!
ddipaola,
What does 30 hours per week have to do with anything? Has no affect upon depreciability of the property.
There is no minimum number of hours required to be actively managing my rental property.
Just like I stated in another topic .....I am giving hints to becoming a real estate professional without having a license. Once that is achieved you basically just created another entity to tax losses under.