Open TurboTax

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
Announcements
Your taxes, your way. Get expert help or do it yourself. >> Get started
Close icon
Do you have a TurboTax Online account?

We'll help you get started or pick up where you left off.

cancel
Showing results for 
Search instead for 
Did you mean: 
wacsu324
New Member

Can a realtor be added to management expenses for their fees for a rental property?

I'm renting a condo. In 2016 I lived in condo from January to july and started renting it out in august. A realtor to care of everything and charged 1st months rental for fee.

Trying to find out where I can add this.

12 Replies
Carl
Level 15

Can a realtor be added to management expenses for their fees for a rental property?

You'll show this as a coversion from personal use to residential rental real estate in 2016. As you work through the Rental & Royalty Income (SCH E) section of the program, when you get to the expenses part, there is an entry box specifically labeled "management fees" and you'll enter it there.

Also, your reference to "realtor" is not accurate for this specific purpose. If you are paying them to manage your rental property, then the correct reference to them would be "property manager". It's very common for a realtor to be the property manager for rental property. But when you refer to them as "your realtor" it can call into question if you are paying management fees, or something else.

wacsu324
New Member

Can a realtor be added to management expenses for their fees for a rental property?

Since the real estate company handled the process, do I answer yes as an active participant?
Carl
Level 15

Can a realtor be added to management expenses for their fees for a rental property?

It depends, since your wife is an RE professional. Here's what I see in the "learn more" link.
What Material Participation Means for Real Estate Professionals

If you're a real estate professional you can deduct all of your losses from your rental properties if you can prove that you materially participate in their management. It's important to keep records for all your activities.

You are materially participating if:

 - More than half of your personal services are provided for your real estate business, and

 - You spend more than 750 hours each year on each property

This means that even if you are a real estate professional, but you're not materially participating in all of your properties, it's possible that all of your losses will not be fully deductible, or deductible only up to $25,000. That's because your involvement with your properties would be considered passive activity (just like a regular taxpayer who happens to own rental real estate).

About carryovers:

If you had passive activity losses from rental properties (regardless of whether you're a real estate professional), you can carry them over to the next year - just like losses from stock sales.
wacsu324
New Member

Can a realtor be added to management expenses for their fees for a rental property?

I'm not a realtor, I just hired them to handle rental process that was involved.
Carl
Level 15

Can a realtor be added to management expenses for their fees for a rental property?

Oh okay. I mis-read your post and thought you were a realtor, that was paying some other realtor to manage your property. But basically, if you do not care what decisions the property manager makes concerning who the property is rented to, who is hired to do repairs, maintenance and stuff like that, then you do not material participate, and your losses are limited.
wacsu324
New Member

Can a realtor be added to management expenses for their fees for a rental property?

They did the advertising, screening. When they found a client, we would go over it together and my wife and I would make final decision on tenant. Sorry about all this. This is my first time renting property. It's all new to me. I'll probably have more questions as I go through the tax software. Thanks for your help
Carl
Level 15

Can a realtor be added to management expenses for their fees for a rental property?

Then you two are NOT materially involved in the decision making and management decisions. If all you do is "approve", you're don't the one doing all the work.
wacsu324
New Member

Can a realtor be added to management expenses for their fees for a rental property?

We're responsible for repairs and whatnot. Once it was rented out the tenant has to contact me if there's a problem.
Carl
Level 15

Can a realtor be added to management expenses for their fees for a rental property?

Oh I see. that's material participation. There's a "learn more" link on that screen that explains it. Sounds to me like once you've got a renter in there, then your "property manager" is no longer in the picture. So I would call what you pay them, more of a "finders fee". Now if what you paid the property manager is not included in the 1099-MISC box 1 income, then you won't report what was paid to them, is all.
wacsu324
New Member

Can a realtor be added to management expenses for their fees for a rental property?

Can the fee from real estate company be added to Legal/Professional expenses?
Carl
Level 15

Can a realtor be added to management expenses for their fees for a rental property?

If that's what it is, then yes, and provided it was paid from the money you actually received as rental income. Usually, if the PM is the go-between for the money from the renter to you, the PM withholds their share and sends you the rest. Then the 1099-MISC the PM issues you, only shows what they sent you - not what the renter paid.
Carl
Level 15

Can a realtor be added to management expenses for their fees for a rental property?

Here's some additional information that I encourage you to read, so that you interpret what the program is asking you for, correctly. Doing things wrong can (and will) be costly in the future.

Rental Property Dates & Numbers That Matter.

Date of Conversion - If this was your primary residence before, then this date is the day AFTER  you moved out.
In Service Date - This is the date a renter "could" have moved in. Usually, this date is the day you put the FOR RENT sign in the front yard.
Number of days Rented - the day count for this starts from the first day a renter "could" have moved in. That should be your "in service" date if you were asked for that. vacant periods between renters count also PROVIDED you did not live in the house for one single day during said period of vacancy.
Days of Personal Use - This number will be a big fat ZERO. Read the screen. It's asking for the number of days you lived in the property AFTER you converted it to a rental. I seriously doubt (though it is possible) that you lived in the house (or space, if renting a part of your home) as your primary residence or 2nd home, after you converted it to a rental.
Business Use Percentage. 100%. I'll put that in words so there's no doubt I didn't make a typo here. One Hundred Percent. After you converted this property or space to rental use, it was one hundred percent business use. What you used it for prior to the date of conversion doesn't count.

RENTAL POPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED

Property Improvement.

Property improvements are expenses you incur that add value to the property. Expenses for this are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.

To be classified as a property improvement, two criteria must be met:

1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.

2) The improvement must add "real" value to the property. In other words, when  the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.

Cleaning & Maintenance

Those expenses incurred to maintain the rental property and it's assets in the useable condition the property and/or asset was designed and intended for. Routine cleaning and maintenance expenses are only deductible if they are incurred while the property is classified as a rental. Cleaning and maintenance expenses incurred in the process of preparing the property for rent are not classified as cleaning/maintenance costs. They are instead classified as startup costs, amortized as such and depreciated over time.

Repair

Those expenses incurred to return the property or it's assets to the same useable condition they were in, prior to the event that caused the property or asset to be unusable. Repair expenses incurred are only deductible if incurred while the property is classified as a rental. Repair costs incurred in the process of preparing the property for rent are classified as startup costs, amortized as such and depreciated over time.

Startup Costs

Please note that if residential rental income is not your PRIMARY business, and your PRIMARY source of income, then your rental business is considered to be passive, and you flat out, no way, no how , are not allowed to deduct your startup costs. Period. The IRS says so. See https://www.irs.gov/pub/irs-drop/rr-99-23.pdf and please take note that rental property produces “passive” income, while other types of businesses produce “active” income. Your rental property is not classified as your “active” business, unless you are a real estate professional, an active participant in the management of the property, and it provides a substantial (more than half) amount of your taxable income for the year. All three requirements must be met. There are no exceptions

Start up costs are expenses incurred while preparing the property for rent, with the express purpose being to prepare it for rent, before it is available for rent. These costs do include repair, cleaning and non-recurring maintenance cost. It does NOT include property improvements. With a normal business that produces active income (rental income is passive) you would amortize these costs over 15 years. But you can’t do that with a rental property. However, you can deduct a maximum of $5000 in startup costs in the first year the rental is available for rent, PROVIDED your total startup costs do not exeed $50,000. This is reported on line 18, “Other Expenses” of SCH E, and should be labeled “start up expenses”.

Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become “a material part of” the property, from the perspective of a property appraiser, it doesn’t add “real value” to the property.

However, when you do something like convert the garage into a 3rd bedroom for example, making a  2 bedroom house into a 3 bedroom house adds “real value”. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.


About Community

Learn about taxes, budgeting, saving, borrowing, reducing debt, investing, and planning for retirement.

3.48m
Members

2.61m
Discussions

Manage cookies
v