Posted about 9 years ago

Rental Expenses in Schedule E

I have just started using QuickBooks to prep for tax season and to help me analyze my properties. As a non-accountant, I am constantly wondering how I should post transactions to save my CPA time at the end of the year. I have seen several questions in the forums about how to classify specific expenses within the IRS Schedule E expense classifications.

I decided to start a blog so we can keep a list of expenses and their classifications. I get the impression from my CPA that the category is not too important as long as it is a valid expense. Some expenses will initially be under 'Unknown'. I hope our more accounting-knowledgeable members will help us to classify them correctly in the comments.

Where I have added items that I assume to be in the correct category, I have added a '?' at the end. Again, I hope an accountant will confirm or set me straight.
Feel free to challenge classifications in the comments.

Advertising:
For-rent ads & signs

Auto and Travel:
Milage, parking
For out-of-state: flight, hotel, meals(50%)

Cleaning and Maintenance:
Janitorial?
Painting
Prep between tenants?
Replacing an old appliance with a used one that is not an appreciable upgrade?
Change locks?
Pest control?
Tree trimming?
Mowing/snow removal/gardening?

Commissions:
Real Estate Commissions
My CPA says first-month's-rent commissions can go here or Management Fees

Insurance:
Property/Fire/Landlord insurance
Umbrella liability? Mine is tied to my car insurance so may need to be split.

Legal and other professional Fees:
RE lawyer
HOA fee
REI meetings, seminars, consultants, BP Pro fee?
RE books, magazines?
RE-related CPA charges?

Management Fees:
Monthly rent percentage
(I include) first-month's-rent commission

Mortgage interest paid to banks, etc:
Mortgage payment minus principal, insurance, Property taxes
PMI?

Other Interest:

Repairs:
Most repairs

Supplies:
Paint, cleaning supplies

Taxes:
Property Tax
City housing fees (or Other)

Utilities:
Electric, gas, water, trash, sewer

Depreciation Expense or depletion:
This usually comes from your CPA via a Ouiji board.

Other (list)
Tools: shovels, rakes, power tools kept at property
Tools - "Other" listed as de Minimis expenses or Section 179 depreciation exemption.

Office Expenses
Cell phone charges

Equipment / truck rental should be classed with whatever project they are associated with. (Repairs, lawn maintenance, a remodel, etc)
Where should capital expenditures post? long-term assets?

Capital Expenditures: (Not on Schedule E. Added to basis(cost) and depreciated)
Remodel (includes painting, etc)
Upgraded appliances (HVAC(including a new motor), stove, refrigerator)
New roof

Non-deductable:
Mortgage principal

Unknown:

Other Postings:
How should I post mortgage payment that includes insurance and property tax?
(See Brandon Hall's comment below for the correct way)
My mortgage payment is the same each month, but the principal and interest portions change. I have a 'memorized' payment to Mortgage Payment expense, insurance, and property tax. At the end of the year, I will break out principal & interest from my lender's 1099.

My PM holds security deposits. How should I post forfeited deposits?
Other Income.

Comments (6)

Thanks Kush,
I like your logic.

Jim Workman, over 8 years ago
I usually put HOA fees as Maintenance since that is what it is predominantly used for. Many posters on various sites also recommended the same.
I put Cell phone charges under utilities as telephone is usually classified as utility and who keeps landlines these days.
I also classify Bank Charges, Office Supplies etc. under Others and usually split them evenly amongst all the properties if they are not directly related to one specific property.

Kush Shah, over 8 years ago
"Replacing an old appliance with a used one that is not an appreciable upgrade" is still a capital expense in my opinion. You are not repairing the old appliance, you are replacing it. Does not matter if the replacement is pre-owned and there is no rule that says the replacement has to be an upgrade, you still capitalize the cost of the replacement and then depreciate it.
Forfeited security deposits are additional rent.
HOA fee goes on my Schedule E as Other.
It is my understanding that Section 179 expenses are not allowed for rental property. Unless you are operating an active income business, Section 179 probably is not available to you.
I am also leary on REI clubs, seminars, educational materials etc. Most of the time these things are not exclusively designed to make you a better landlord, but rather, give you insights or training in a different aspect of real estate investing. In my opinion, the "educational" costs are to train you for a different business and thus, the cost of learning a new profession is a personal expense and not deductible. I know there are others who take a more aggressive position and would deduct the expenses as education on Schedule E (Other). I just don't think these expenses would hold up in an audit, so I don't claim them in the first place.

Dave Toelkes, about 9 years ago
Equipment Rentals - depends on what work the equipment is in relation to. If you are repairing something, then it's a repair. If you are adding a capital component, such as a roof, the equip rental will be added to the cost basis of the roof and depreciated over 27.5 years.
City housing fees - "Other" or "Taxes"
Tools - "Other" listed as de Minimis expenses or Section 179 depreciation exemption.
Mortgage payment will need to be broken into interest expense, property taxes, insurance, and principle. You cannot deduct the principle. Generally, the lender will issue a 1099 that includes taxes and interest expense for the year.
Forfeited deposits - list as other income and let the CPA figure out where he wants to place it.
Hope this helps.

Brandon Hall, about 9 years ago
1. @Brandon Hall
  Thanks Brandon,
  That is just the kind of feedback that I am looking for. I have tried to incorporate your comments into my post.
  
  Jim Workman, about 9 years ago
  1. Do you run another business or is it just a rental business? If just a rental biz, avoid schedule C and report office expenses on the "Other" line.
    
    Brandon Hall, about 9 years ago