Just bought house and started renting this year - what to do?

ngdonna2020 — Wed, 30 Oct 2024 16:09:36 GMT

Hi I bought a home in January this year , paid for some updates and rented it out in May (located in Tennessee). What should I do to prepare for the upcoming tax filing season? This is my first year as a landlord - how do I prepare myself for real estate depreciation, deductions and lowering my tax ? Should I request any sort of documents besides the receipts from my contractors? Thanks!

Re: Just bought house and started renting this year - what to do?

John-H2021 — Wed, 30 Oct 2024 19:10:07 GMT

Hello,

For rental property you will need to keep track of your rental income and expenses for the property.

Keep tax forms and supporting paperwork related to your income, expenses, home, and investments for at least three years after filing. After that, the statute of limitations for an IRS audit generally expires.

You will depreciate the house ( over 27.5 years), which the program will help you through. You may also have other expenses or capital improvements that will either be depreciated or expensed.

The main difference between an expense and a capital expenditure is the length of time the benefit lasts:

Expense

An expense is a cost that is used up, worn out, or becomes obsolete within a year. Expenses are deducted in the year they are incurred and are fully tax-deductible. Examples of expenses include rent, utilities, and employee salaries.

Capital expenditure

A capital expenditure, or CapEx, is a long-term investment that provides a benefit to the company for more than a year. CapEx is recorded as an asset on the company's balance sheet and is depreciated over time. CapEx is not deductible from income for tax purposes. Examples of CapEx include the purchase of buildings, equipment, machinery, and vehicles.

The IRS has guidelines for determining whether a repair or improvement is an expense or a capital expenditure. For example, repairing a leaky roof is an expense, but replacing the roof is a capital expenditure.

Before an asset is placed in service, all expenses incurred to bring it to a condition where it can be used should be capitalized as part of the asset's cost.

This includes:

1. The original acquisition price

2. Freight, insurance, handling, and storage costs Installation costs, including site preparation, assembling, and installing

3. The cost of trial runs and other tests

4. The cost of reconditioning used equipment

5. Financing costs if a company borrows funds to construct an asset

6. Labor, sales taxes, transportation, and materials used in the construction

7. Repair-type expenses incurred before the asset is placed in service

Capitalized costs are initially recorded on the balance sheet at their historical cost. The decision to capitalize an asset is a critical business issue because it can affect a company's profits, losses, net worth, tax liability, and debt covenants.

The placed-in-service date is when an asset is first placed in use for accounting purposes. This date determines when depreciation begins or when a tax credit can be granted.

This link will explain how to report the rental income and expenses on the tax return along with depreciation and other useful tips.

https://turbotax.intuit.com/tax-tips/rental-property/real-estate-tax-and-rental-property/L3e09vT71?srsltid=AfmBOorBGX9mR3IHh0E90US63PVqybR7GoE6i-RQRD9Ut6m4dhmA_8Ji

Re: Just bought house and started renting this year - what to do?

ngdonna2020 — Wed, 30 Oct 2024 18:39:13 GMT

Hi John - thank you for your response! To depreciate the house that I just bought in January ( over 27.5 years), do I need to do anything or keep any paperwork to prepare myself for the upcoming tax season? Appreciate any tips and advices! Thanks

Re: Just bought house and started renting this year - what to do?

John-H2021 — Wed, 30 Oct 2024 19:04:10 GMT

To depreciate the house you will need

1. Date purchased

2. Date available to rent

3. Cost basis (purchase price plus certain closing cost)

4. You will need to have the cost basis broken out into 2 pieces house and land. You can usually get the breakdown on your property tax bill.

topic Just bought house and started renting this year - what to do? in Get your taxes done using TurboTax

Just bought house and started renting this year - what to do?

Re: Just bought house and started renting this year - what to do?

Re: Just bought house and started renting this year - what to do?

Re: Just bought house and started renting this year - what to do?