BiggerPockets

I bought my second house this year at the end of July. I rent my first house out to my mother. I could use guidance on maximizing my tax return. Can someone please advise me on how I should be claiming (and on what form?) interest/taxes and rental income on both properties? I have done this in the past on my main home, but not sure how to do this properly, with the 2nd home now, which is not my primary residence. I also made improvements to the newest house immediately. Being that it is homesteaded, I imagine those are not deductable?

Also, I own them both in my name. I did not form a legal entity or LLC as a property management entity, or for the first property. Is this something I should look into even though I only own 2 properties at this point? Remember I am renting to my mom. (im implying liability is low). Is there any tax advantage for starting an entity for my first property?

Any help would be appreciated. I would like to save a couple hundred bucks by doing my taxes myself, and learn a thing or two as well. Besides the houses, I have no other businesses at this time, just w-2 income, so it should be fairly easy. Thank you in advance!

I did the same thing. I suggest that you try turbo tax to start. It doesn't cost anything until the end, if you decide it's too hard then go to an accountant.

But IMO the experience of trying turbo tax will help to prepare you for the questions that the accountant will have.

funny you mention that, after i posted this, i jumped on turbo tax, and literally am going through the premier software right now. :)

Hi @Shane Johnson,

As a tax accountant who represents taxpayers before the IRS. I am happy to answer any questions you have.

Are you renting to your mother at Fair Market Value?

If you are then you can deduct and treat it just like any rental property including being able to depreciate it and deduct the usual items.

Consider starting with an insurance policy. Look up insurance entity in the search bar.

there would be no advantage to an creating an LLC or electing S-corporation status as the income will all pass to you anyway.

Fact is you need to invest that many to learn how you are going to treat this an any other property you purchase for rental.

Pay me now or pay me more later is the saying that comes to mind. And that is how the IRS looks at it.

You really have to run the comparison and talk to an accountant to determine what you should do. The first year for any rental property is the most important.

-Steven the Tax Guy

Ha. I also had paid someone $250 and started to feel he was not worth it. But my broker preaches a lot about a GOOD accountant's value to your investing present and future. The key is i think, a GOOD accountant. I plan on finding a good one someday, maybe next year. But at least now I have some clue as to what is going on under the hood. It can stay present with me all year long now.

@Levi Zortman and @Ken Rishel,

A good accountant is one who you can reach all year and has no problem with answering your questions. You need someone you can reach year round who will check in with you to see if you need anything.

If you don't reach out to your accountant throughout the year you will not feel he is worth it.
I offer all of my clients a mid year check up to see how things are going so they can make changes for the end of the year.

-Steven

I have various forms of investments and I use the tax software. I don't use Turbo Tax but even cheaper Tax Act ($10)!!! I would definitely say that having someone do your taxes saves you lot of time. However, when it comes to actual money, my experience says that these days the softwares like turbotax or taxact saves you as much as a accountant would. However, there is one catch. For many tax items, the entry is not very straight forward and needs your best judgement. An experienced accountant would be able to figure this out in no time versus you doing it yourself. If these kind of efforts and going through every single questionnaire items in a software is too much of effort or time then accountant is definitely a good option. But if you actually are curios about learning about the deduction and enjoy the process itself than these softares are lot of fun and saves about the same amount of money.

Having said that, I can clearly see why someone with a very large and may be complex investment portfolio would want to avoid that headache and give it to a professional. But for someone like me, who has something in everything but does not compare to a large company, works just fine with the $10 taxact software. It is actually learning experience for me to keep in mind for my next year's tax strategy as well.

@Sam Schlacter, I bet you that I could find at least a $100 error or missed deduction on your tax return. Remember the more complex, the more likely you are to be audited. Do you really know what the answer to one question is without reading into all of the detail behind that one deduction? Yes some are straight forward and simple to put together. It is not about the time involved it is about having an accurate tax return AND adequate tax planning. If you are not getting the value out of your accountant you need to find another.

@Shane Johnson,

I have a deep loathing of TurboTax. I find many mistakes when new clients bring in prior year returns. Yes it can be great if you have mortgage interest, a stock trade or two. If you have anything beyond that you need to be seeking advice.

An accountant is not about the tax preparation, they are about the planning and preparation for the future.

-Steven

Sam, I believe you're overreacting. It wasn't a "juvenile personal attack," but rather a statement made based on years of experience working with numerous clients who used inexpensive tax softwares in the past. Tax law is simply complex ;)