Sign Up

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
cancel
Showing results for 
Search instead for 
Did you mean: 
california1683
Level 2

Using a business DBA and Schedule E for rental income/expenses

Hi, I plan to buy a small rental property in my name. But for the purposes of separating personal and business finances I want to file a DBA to create a business and open a business checking account to collect rent and pay expenses. This seems pretty normal.

 

I will NOT have a separate EIN for this business. It's a sole proprietorship. I've read enough messages on this forum that tells me I need to use Schedule E. However there's nowhere in Schedule E for me to put the business name. There is a place to put business name in Schedule C, but I should not be using Schedule C for rental properties.

 

Is this even an issue or am I overthinking about this?  Just use Schedule E and put all the income/expenses from the business account into Schedule E as if everything is under my name and SSN?

 

Thanks.

1 Best answer

Accepted Solutions
AnnetteB6
Expert Alumni

Using a business DBA and Schedule E for rental income/expenses

Since you will not have a separate EIN for your rental business, everything will still be under your Social Security number on your tax return.  Just enter the details on Schedule E as you normally would and do not worry that you are operating the rental property under a separate business name and checking account.  It is actually very smart to keep the financial aspects separate.  

 

 

@californai1683

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post

18 Replies
AnnetteB6
Expert Alumni

Using a business DBA and Schedule E for rental income/expenses

Since you will not have a separate EIN for your rental business, everything will still be under your Social Security number on your tax return.  Just enter the details on Schedule E as you normally would and do not worry that you are operating the rental property under a separate business name and checking account.  It is actually very smart to keep the financial aspects separate.  

 

 

@californai1683

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
Anonymous
Not applicable

Using a business DBA and Schedule E for rental income/expenses

there is nowhere you can enter business name for rental property. 

Anonymous
Not applicable

Using a business DBA and Schedule E for rental income/expenses

 
Carl
Level 15
california1683
Level 2

Using a business DBA and Schedule E for rental income/expenses

@Carl would you believe that you convinced me to not use LLC for rental property?  Yes, such is the power of a super helpful member on this forum. 😁I read a lot of your messages on this topic and you actually convinced me.

 

I had a single member LLC for something else and now I think it's just too much trouble. The overhead of those separate tax filings is killing me.

 

Carl
Level 15

Using a business DBA and Schedule E for rental income/expenses

@california1683 I'm not trying to convince anyone of anything really. Just trying to educate folks on the absurdness of it. I get the impression that many so-called "experts" (CPAs, tax pros, EA, etc) are trying to talk people into making their taxes more complicated than they need to be. I think they do this for the sole purpose of keeping a client with them so they can make money off that client. I fully understand they are in business to make money. But I also understand that many of them are not in business to save "me" money. The more complicated they can make it seem, the better chance they have of keeping the client's business. That just one aspect of how I see things working in reality. But then, impressions and opinions are like another thing we all have too. 🙂

I've been doing this landlord stuff for close to 30 years now. Been there. Done that. Got the T-Shirt. Over those years I've learned a lot, and a majority of what I learned was in the school of hard knocks.

For some situations, it may make sense to put rentals into a business structure. For example, when you have two or more people who own rental property that are not married to each other, putting it into a partnership makes sense. Why? Because in my breadth of experience I've learned that the one ship practically guaranteed to sink before reaching port, is a Partnership. So with rental property in a partnership, if things fall apart (or I should say "when" things fall apart) specific legal procedures must be followed to dissolve the partnership - and accountability for the business resources is one of those things that must be dealt with on a legal front.

I'm also self-employed as a computer consultant (SCH C business) since 2005. So with the additional knowledge from the SCH C side of the house, I have a direct correlation between the SCH C stuff and the SCH E stuff. Both have their pros and cons when it comes to taxes.

 

 

 

Virajsmom
Level 2

Using a business DBA and Schedule E for rental income/expenses

@Carl  I have a related question for my rental property. I am a single mom working full time. On the side I have rented out my condo (I’m not living there) and I just created a DBA and got an EIN number. I was told creating DBA will let me take deductions like car, computer, gas, maintenance of property etc. I was wondering if I need a business account or get rent paid to DBA for deductions and to look like a legit business? Also should I put this DBA business name in my living trust? Or put my rental condo in the DBA name? Sorry newbie at this - trying to figure best way. Thanks in advance for your help. 

Critter-3
Level 15

Using a business DBA and Schedule E for rental income/expenses

Carl will be by to talk to you for sure  however I will give you my opinion here ... first you really should be more careful who you get your financial info from as you did  not need an EIN or DBA for a rental property at all and there is no place to enter that EIN on the Sch E on your personal return at all.  Unless you are in the "Business" of renting properties you only have a passive source of income reported on a Sch E  where all the income and expenses are listed.   Office in Home expenses are not allowed on passive income and you also do not pay self employment taxes which is better than the Sch C business option.   

 

Also the property doesn't need to be in the DBA/EIN at all  and if you have a mortgage on the place I doubt you can retitle it legally without triggering the Payment in Full clause ... check with your bank.  And again this is not needed to report a rental on a Sch E. 

 

I highly recommend you either seek local professional assistance to be educated in your situation  and/or  read up on rentals in the IRS pub 527 :  https://www.irs.gov/forms-pubs/about-publication-527

 

 

Virajsmom
Level 2

Using a business DBA and Schedule E for rental income/expenses

Thank you! I realized this once I read through the thread. My idea was to deduct expenses using this DBA - but I guess it is not necessary unless I use it for several properties.

Carl
Level 15

Using a business DBA and Schedule E for rental income/expenses

I am a single mom working full time. On the side I have rented out my condo (I’m not living there)

This indicates to me that rental income is not your primary source of income. It can't be if you are already working a full time job (or two, as a single mom).

 

I just created a DBA and got an EIN number. I was told creating DBA will let me take deductions like car, computer, gas, maintenance of property etc.

Don't know who told you that. But assuming you are the sole owner of the property, you were told wrong.

I was wondering if I need a business account or get rent paid to DBA for deductions and to look like a legit business?

Short answer is no. I'll expand on that later.

Also should I put this DBA business name in my living trust?

No. In fact, there's no reason a "dba" needs to exist in your specific and explicit situation as I understand it.

Or put my rental condo in the DBA name?

Short answer, no.

Sorry newbie at this

Please don't apologize. It's not like you learn this stuff through osmosis. You gotta start somewhere, and for just about everybody, that starting point is at the bottom.

-trying to figure best way. Thanks in advance for your help.

Assuming that 2022 is your first year dealing with this, I would "HIGHLY" recommend you purchase the CD/Desktop version of TurboTax that you physically install on your Windows or MAC computer. Even if you've used TurboTax in the past, if this will be your first time dealing with rental property, the CD/Desktop version of the program is significantly more user friendly and much more versatile and flexible than the online version of TurboTax could ever hope to be.  For example, with the CD version it defaults to "interview mode" where it asks questions, you provide answers, select check boxes, etc. and the program creates tax forms as needed.  It also gives you the option to switch to "forms mode" where you can see the forms and "follow the math" when you have questions about why certain totals are what they are.  With the online version, forms mode is not an option.  Additionally, with the CD/Desktop version starting over is a peice of cake. You simply delete the tax file on your computer, restart the program and it's "as if" you just install the program and are using it for the very first time.

With the online version, you can't see the actual forms until "after" you pay your filing fees for the program. But that can put you in a catch-22 situation because once you've paid for the online program, clearing the return and starting over from scratch is not an option.

Now, I'm going to stop here to get more information from you, so I don't waste time providing information that does not apply to your explicit and specific situation.

- Did you use the online version of TurboTax to complete and file your 2021 tax return? Or did you use the CD/Version? Maybe you didn't use TurboTax at all and 2022 will be your fist time using TurboTax tax?

- Were you living in the condo as your primary residence at any time since you owned it? If yes, on what date did you move out? Also, on what date did you decide to rent it out and actively start advertising it for rent? Maybe you haven't actually done that yet?

I'll probably have more questions. But hey, tax filing season for 2021 is over and for 2022 we still have plenty of time. So I'm more than willing to take the time to walk you through the learning process so you don't learn things the way I did, which resulted in me paying my fair share of what I call "stupid tax" to the IRS.

Meanwhile, print the below and keep it for reference. It will definitely come in handy for you during the learning process, as well as the first time you are dealing with this on your taxes.

Rental Property Dates & Numbers That Matter.

Date of Conversion - If this was your primary residence or 2nd home before, then this date is the day AFTER you moved out, or the date you decided to lease the property – whichever is later.
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 was contracted to move in, and/or "could" have moved in. That would be your "in service" date or after if you were asked for that. Vacant periods between renters do not count for actual days rented. Please see IRS Publication927 page 17 at https://www.irs.gov/pub/irs-pdf/p527.pdf#en_US_2020_publink1000219175 Read the “Example” in the third column.
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, 2nd home, or any other personal use reasons 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 PROPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED

Property Improvement.

Property improvements are expenses you incur that Improve, restore, or otherwise “better” the property. Basically, they retain or add value to the property.

Betterments:
Expenses that may result in a betterment to your property include expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property. An example of a pre-existing condition or defect in this context would be something such as foundation repair (slab jacking) or some other, hidden and costly, anomaly.
Restoration:
Expenses that may be for restoration include expenses for replacing a substantial structural part of your property, repairing damage to your property after you properly adjusted the basis of your property as a result of a casualty loss, or rebuilding your property to a like-new condition.
Adaptation:
Expenses that may be for adaptation include expenses for altering your property to a use that isn’t consistent with the intended ordinary use of your property when you began renting the property. Adding a wheelchair ramp would be an example.

 

Expenses for these types of costs 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 need to 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 retain or 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.

There are rules that allow you to just flat-out expense and deduct some property improvements instead of capitalizing and depreciating them, if the total cost of the improvement was less than $2,500. It’s referred to as “safe harbor di-minimis” But depending on the specific situation, this may or may not be beneficial. Just be aware that not every property improvement that cost less than $2,500 qualifies for this. If this interest you, the rules can get complex. So a good place to start reading is on the IRS website at https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations. The stuff on di-minimis starts about one page down.

Cleaning & Maintenance

Those expenses incurred to maintain the rental property and its assets in the usable 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 for the very first time are not deductible.

Repair

Those expenses incurred to return the property or its assets to the same usable 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 for the very first time are not deductible.

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.

 

Critter-3
Level 15

Using a business DBA and Schedule E for rental income/expenses

One more point ... depreciation on the property is not optional ... you MUST enter the property as an asset and depreciate it.  Failure to do so is not only a pain to correct later but it can cause you to pay way more in taxes.  

Carl
Level 15

Using a business DBA and Schedule E for rental income/expenses

I'll get into the depreciation stuff later. Right now, just trying to gather information so I don't provide information not relevant to the given situation. As it stands, "information overload" can't be avoided. But I'm going to at least try to reduce it, since we appear to have plenty of time.

 

Virajsmom
Level 2

Using a business DBA and Schedule E for rental income/expenses

Thank you so much for taking the time. I will read through everything you asked and send you answers tomorrow so I can be sure I explain my situation correctly to get your guidance. Appreciate it - have a wonderful evening. 

Virajsmom
Level 2

Using a business DBA and Schedule E for rental income/expenses

@Carl  here are some of the answers - please let me know if I missed anything. I am working full time with a W2.

1. This is my only primary condo and I was living here till Aug 21, 2019.  I advertised it for rent on FB, Craigslist in June and started renting out from Aug 21, 2019 to 2 girls (2 separate lease).

2. I made some Property improvements before Aug - bathroom remodel, kitchen update around 20,000.

3. Maintenance - been paying handymen on and off for basic repairs toilets, fridge, washer etc. I buy the parts and they repair for a fee.

I have a HOA fee $520/month includes landscaping, gardener, common pool maintenance, outside painting, decks, water, garbage, earthquake and roof insurance etc. - can this be included in my maintenance?

4. In between renters - I have got the condo cleaned by cleaners for a fee.

5. From 2019 till date I have filed using a tax preparer because I was not sure how to handle this rental situation.

In 2021 she filed Sch E  - Expenses include Auto, Home Insurance (which I read your advice- I should change to Rental dwelling Ins), Mortgage interest, repairs, Taxes, Utilities that I am paying (internet etc), Depreciation Expense - with a loss of around 10,000 on line 21.

6. Also filed in 2021 Form 4562 Depreciation and Amortization with MACRS Depreciation about 14K (included in Sch E).

7. Form 8582 Passive Activity Loss Limitations - she added the 10K net loss from Sch E, Prior years unallowed losses 2K, total 12K loss.

8. I filed for DBA with EIN because I thought I can use all these expenses like buy a car, laptop, gas, repairs, rent where I am currently living, etc as deductions and reduce my taxes further. But I suppose these are all going into my Sch E and I cannot use the DBA for this?

9. If I want to buy another property and rent it out will I be able to use this DBA?

I thought I could get additional deductions using DBA and it would be better for my taxes - because many friends doing different businesses advised me so.

Again I appreciate all your advise - it is so helpful for me starting off.

 

Privacy Settings
v