How to determine how much taxes I owe from rental income?

[DoubleDee]

Background:
- Using Turbotax Premier Desktop Version

- Have multiple rental properties running as sole proprietor

Question:

After going through all the turbotax questions, the software tells me whether I have a refund, or owe taxes, based on my personal income + rental property income.

Because my accounting is kept separate for each of my rental properties, is there a way in Turbotax to tell me exactly how much taxes I owe/getting a refund for each of my individual properties when I'm at the point of  where I'm ready to file with the IRS? 

Previously I was manually keeping track by inputting my personal income first and noting the tax refund/owe, then adding each property individually and keeping track of the change in refund/amount owing.   However, because I have depreciations for my rental properties, those get populated by Turbotax every year when I start my taxes, making it harder for me to determine what exactly I owe/get a refund for me, and each of my properties separately.

I hope there is a way to figure this out in turbotax.

[JamesG1]

Form 4562 Depreciation and Amortization Report includes all of the depreciation and asset information.  

It would be possible to remove the asset information for each rental property, then add the assets back as you complete each individual rental property.

In TurboTax Desktop Premier version, follow these steps to delete a rental asset.

• Go to Federal Taxes / Wages & Income / I'll choose what I work on / Rental properties and Royalties.
• Select Update to the right.
• Continue through several screens.
• At the screen Rental and Royalty Summary, click Edit for the rental activity.
• At the screen Review your rental summary, click Update to the right of Assets / Depreciation.
• At the screen Do you want to go directly to your asset summary?, select Yes.
• At the screen Your Property Assets, select Delete to the right of the asset to be deleted.
• To add the assets back, click Add an Asset.

@DoubleDee 

[Carl]

Form 4562 has absolutely nothing to do with a refund, in any way, shape, form or fashion.

No, there is not a way to separate things out to see the taxes on each individual property.

If you'll look at line 26 of the SCH E, that is your total taxable rental income. I fully expect it to show a loss; not a taxable gain. This is absolutely normal for long term residential rental real estate.

[DoubleDee]

@Carl 

Thanks for this info.

Can you clarify why you expect to see a loss, and no taxable gains for long term rentals?  For as long as I've had these rentals (>10 years), I've only had a few years where there were losses due to major renovations between tenants.  Just want to make sure I'm not missing anything.  I'm putting in all the operating/trip expenses that I know of/Turbotax asks for.   I depreciate most of the improvements I make to the properties.

[DoubleDee]

@JamesG1 Thanks.  This is how I've been doing it and its a hassle since I have multiple assets that I am depreciating.  Having to delete them and then subsequently adding them back in ensuring all the information is put in properly is quite frankly time consuming and error prone.

[Amazgj]

First of all, I always buy TT Priemer, and I only have two rental properties.   Your properties are entered in based on the address in the Business section.  On the overall expenses overview page, you can see a net gains or loss for each property.  Based on what you can carry over to ordinary income, you can base the effects on your net taxes.  

 I used to do something different years ago and now only every few years, if I feel I need to administratively make withholding changes.  What you can do is make separate files (applications for each property along with your base 1040 report).   This way, rather than seeing the effect of all the properties against your income, you can see the effect of each one.  This can be done after you file your current year's taxes.  

In this way you can see the effect of each property against your income without the influence of the other properties.   This will give you information that is helpful if you're considering selling or buying other properties.  You could even make different models when you considering buying new property inventories to ensure that addition of a new property is a match in your tax strategies along with your investment strategies.  

Not knowing your desired strategic outcome/goals, I can't suggest how to build models that will provide the information you need.  I do suggest you learn how to use last year's TT application to build models and save different files that include your other income sources to plan for next year.  Another good use for this is to use your last year's filing data to build future years taxes with projected remolding expenses.  This will provide you with the best remolding schedule based on the order of projects and houses needing the work.  Again not knowing your (nor do I want to know) personal income configuration as earned, unearned, rental and other, modeling a simulation tax returns seems to me to be what you need to become an expert in.  The only way to do this is to start now in 2023 using your 2022 filings and build models and simulated files to find what works best for you.  

I highly recommend you first develop a structured and strategic file naming strategy that defines what you built the simulated model for.  I suggest you use both folders and file names to differentiate the information that is being yielded.   Without this, you will quickly loose what you built and find yourself spending lots of time trying to find what you need in the future.  I'm thinking folders named for statuses with actional folders nested within them for each property.   Like this:

Property tax model for 2023

        Property house numbers and/or street names

              Turbo Tax files

Property Renovation Schedules

     2024

         Properties

          TT files

    2025

       Properties

          TT files

And so on for all the type modeling and simulations you build for your desired outcomes.  

I hope this helps and you can see yourself becoming an expert in your future property ownership data successes.  

[Carl]

Can you clarify why you expect to see a loss, and no taxable gains for long term rentals?

Typically, when dealing with long term residential rental real estate, when you add up the rental expenses of mortgage interest, property taxes, insurance and the depreciation you're required to take, those four items alone will exceed the total rental income received for the tax year. Add to that the other allowed expenses such as repairs and maintenance costs, and it's almost a given your total deductible rental expenses will exceed your rental income, resulting in a loss.

Now this is not true for everyone. For example, if you have an AirB&B or VRBO rental in a location that's booked year round or close to it, then depending on the location, your pricing and other things, you may actually show a profit.  Likewise if you have a commercial rental property that too may very well show a profit. But still, much of that so-called profit will be eaten up by the expenses.

[Amazgj]

The reason people almost always see a loss is because they are forced to become landlords.  They can’t sell the home they bought, so they rent it.  Hence the first time you do your numbers is the year you convert your property.  I’ll explain more later.  

[Carl]

The reason people almost always see a loss is because they are forced to become landlords.

That's odd. I was just whatching the noontime opinion (formerly known as the 12 noon news) and it was stated that new home buyers are having a difficult time and are having to purchase "used" homes. But then, you can't believe anything in the media now-a-days.

But being "forced" into renting your property has nothing to do with showing a loss on the SCH E. If you choose to become a landlord, you'd probably still show a loss.

[DoubleDee]

I'm not sure you can generalize like that because everyone's situation is different.

For me, I bought my properties back in 2009-2011 timeframe when prices were low so my mortgage interest and real estate taxes are very low.  I also pulled cash out and refinanced when the rates were sub-3% which kept my costs low.

Insurance and utilities are also pretty low in the locale I purchased, yet in the past few years the rental rates have shot up unproportionally.   This is the main reason why I cannot show a loss on these properties because I am making good money while my expenses are way low.   Unless I make major improvements (HVAC replacement, major renovations etc.) there is almost no way for me to show a loss.

[Anonymous_]

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@DoubleDee wrote:

I'm not sure you can generalize like that because everyone's situation is different.

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I agree. Nevertheless, some people tend to make sweeping and broad generalizations based solely upon their own experience (which typically results in misinformation being disseminated).

The statistics show that roughly (very roughly) 50% of long-term rental properties in the U.S. show losses (i.e., far from the norm).

[Amazgj]

Those who buy rentals for investment have three strategies.  
Income

Tax savings

Capital gains

  long term

   Short term

Those who invest for income generally won’t buy tax losses.  If they have a tax loss in the beginning, within a few years most of their income is sheltered but they still want, seek and plan for generated income after taxes. 

Those investing in the tax loss category are looking to shelter other tax gains in unearned income including capital gains taxes on other assets.

Capital gain investors are looking to maximize the write offs even with negative cash flows to carry forward tax losses. They use these for when the property (or other properties) is/are improved or appreciates  to where it can be sold and the gains are mostly tax free.  

when you buy a property to live in, you lack a strategy, because all your requirements are for your use.  You lack a strategy for the purpose of the investment and hope for the best. 

the lack of a strategy/plan can result in really bad results.  Such as when you have equity in the property, once time expires on your primary residence (500k couple 250k single) your former home equity becomes taxable without the very generous tax free income benefits.  

i personally have had many rentals and in retirement I’ve kept two. One that after all expenses generates a sizable income and taxable income and the other provides a lesser income with net tax losses to shelter the others income.  In time the depreciation will run out, then my carry forward losses will shelter both incomes for a few more years. After that, I make more and will pay more in taxes, but I hope not to be driooling in my bib then.  

So the final status for those of us who maintain rental property for retirement income is to have investments that increase income with the cost of living (most times better). Increases in value and provides decent housing to others.  

Don’t get hung up on the word loss, always plan your investments, and invest in your plan.  It’s like SCUBA diving, you must plan your dive, and dive your plan. Or, you might die, in real estate you will most probably loose money and/or ruin your credit too.  

[Carl]

Thats why I use the word "typically" when referring to this stuff. 🙂

I myself have one rental (of three) that I do show a gain on. That's because I paid off that particular rental property years ago. With no mortgage interest to deduct on it after that, it did take a few years to use up the carry over losses. I've been showing a gain on that particular property for a few years now. But the bottom line on the SCH E still shows a loss because of the other two rentals. That loss is less than $25K and I have the "other" ordinary income to deduct it from. So I've not had any carryovers for quite a bit now.

[Anonymous_]

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@Carl wrote:

Thats why I use the word "typically" when referring to this stuff. 🙂

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I understand but when you state that long-term residential rental property "typically" shows a loss, that is not correct (it is not borne out by the facts).

[Amazgj]

It’s a shame you have no trust for the information gained in the news.  It must be a hard life to lack trust.