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