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Now own 2 houses - doing taxes myself I think... need help

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Shane Johnson

St Paul, Minnesota

Feb 01 '13, 01:53 PM


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!



Levi Zortman

Saint Paul, Minnesota

Feb 01 '13, 03:03 PM


I am in a somewhat of a similar situation. I bought my 2nd house, fixed it up, and rented it out. I don't have time at the moment to get into my opinion on liabilities and other tax specifics, but I will just say that I have had an accountant for the last 4 years. This year I wanted to learn more about the ins and outs of my taxes because I added a rental property and tax breaks are a huge part of owning real estate. I used web based Turbo Tax premier and learned a ton. Anytime I had a question about something, I googled it or used the built in FAQ system they provide. For a joint return, after Fed and State, it was $90. But here's the kick. You don't pay any of that until you actually go to file. If I were you, I would go through the whole process, and learn about what is out there. Also google what is commonly flagged by the IRS as they are stepping up their auditing. You can gain all this knowledge with no commitment, then decide if you will do your taxes on your own, go with Turbo Tax, or go see an accountant.



Fran Flanagan

North Wales, Pennsylvania

Feb 01 '13, 03:15 PM


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.



Kyle J. Donor

Real Estate Investor from Northern, California

Feb 01 '13, 03:27 PM
2 votes


I guess I'm in the minority here, but I actually pay someone (tax attorney) to do my taxes and feel that he's worth every penny. Not only does he save me time (and usually money in the form of deductions I didn't know about), but he's also available to me throughout the year for any tax-related questions that come up. I consider him an invaluable resource to my investing.



Shane Johnson

St Paul, Minnesota

Feb 01 '13, 03:27 PM


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



Shane Johnson

St Paul, Minnesota

Feb 01 '13, 03:57 PM


@Kyle J.

I have paid in the past as well. I didnt feel like what he was doing was worth $250 all said and done. I will say though, that my assets/liabiliaties and taxes are *probably a lot less complicated than yours.



Steven Hamilton II Verified Moderator

Real Estate Investor from Lake Villa, Illinois

Feb 01 '13, 07:45 PM
1 vote


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



Medium_hta_logoSteven Hamilton II, Hamilton Tax and Accounting
E-Mail: [email protected]
Telephone: (224) 381-2660
Website: http://www.HamiltonTax.Net
-Steven the Tax Guy Hamilton Tax and Accounting LLC (224) 381-2660


Jeff S

Private Money Lender from Los Angeles, California

Feb 01 '13, 08:57 PM
2 votes


Originally posted by Shane Johnson:
I bought my second house this year at the end of July….I could use guidance on maximizing my tax return.

I’m a member of the minority with @Kyle J. and would no sooner attempt to do my own taxes, than do my own dental work. I know at this point you have no choice Shane, but now is not normally the time to be asking these questions. I meet with my CPA every year around Thanksgiving for end-of-year planning.

The time to form a relationship with your tax professional is as early in your investing career as possible. Sometimes you want to defer income or expenses and sometimes you want to advance them into the current year. There are many strategies you can only use before the end of the year and many take time. These include forming retirement plans or trusts and transferring assets.

I like @Fran Flanagan's suggestion of using TurboTax for education only but guarantee a good CPA could run rings around it.

Jeff



Levi Zortman

Saint Paul, Minnesota

Feb 02 '13, 06:18 AM


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.



Ken Rishel

Residential Lender from Springfield, Illinois

Feb 02 '13, 11:20 AM


There is a national tax attorney in Ohio that has clients all over the nation that are doing manufactured housing communities and real estate transactions. I recommend him highly. His fees are reasonable for a send rate tax attorney and he is world class. I would put his contact information in this post, but I am not sure that is permitted. Contact me privately, and I would be happy to share his information.



Steven Hamilton II Verified Moderator

Real Estate Investor from Lake Villa, Illinois

Feb 02 '13, 09:00 PM
1 vote


@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



Medium_hta_logoSteven Hamilton II, Hamilton Tax and Accounting
E-Mail: [email protected]
Telephone: (224) 381-2660
Website: http://www.HamiltonTax.Net
-Steven the Tax Guy Hamilton Tax and Accounting LLC (224) 381-2660


Chris Clothier Donor

Real Estate Investor from memphis, Tennessee

Feb 03 '13, 07:30 AM
2 votes


@Steven Hamilton II -

I read this thread the other day and was going to respond with the @messenger to you. It's funny how over time you start to recognize that some questions need to be answered by the resident expert!

I agree with @Jeff S, especially on the part of not doing my own dental work! I have an accountant that I meet with monthly and then a CPA who prepares my taxes, but I can meet with him throughout the year just to make sure whatever plan he put together for our taxes is still on track. I own several companies and a nice size portfolio of property so I want to make sure the accounting is done right, which means I don't do it. It doesn't have to be expensive, but I would suggest at the very least meeting with an accountant or tax preparer to make sure your plans for your tax moves line up with their advice.

As far as on BP is concerned, Steve is one of those guys on here who knows his stuff and there are several others who together make up a group of really good advisers. i for one pay attention to their answers!



Medium_new_mi_logoChris Clothier, Memphis Invest, GP
Telephone: 901-212-9647
Website: http://www.memphisinvest.com
www.MemphisInvest.com 1(877)-773-9998 Chris D Clothier


Sam Schlacter

Zephyrhills, Florida

Feb 03 '13, 12:37 PM


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.



Shane Johnson

St Paul, Minnesota

Feb 04 '13, 09:39 AM


@Chris Clothier - I agree, I have been an active reader on here awhile. I appreciate everyones input and opinion, but I too was waiting for Stevens response, which I also figured may say something like, find a professional and build a relationship. :)

This time I decided to go on my own, using this forum over the past few months, Turbo Tax Premium and Google, I was able to figure a few things out. I hope to buy another house by the end of this year, to renovate. Still undecided if I want to flip, or fix, refi and rent. Either way, I will definitely be seeking accounting and CPA advice ahead of time, and from what I learned doing my taxes this year, I will be keeping much better records. I didnt get too aggressive on my deduction claims, but still ended up with a large amount of itemized deductions/much lower AGI.



Steven Hamilton II Verified Moderator

Real Estate Investor from Lake Villa, Illinois

Feb 04 '13, 03:54 PM


@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



Medium_hta_logoSteven Hamilton II, Hamilton Tax and Accounting
E-Mail: [email protected]
Telephone: (224) 381-2660
Website: http://www.HamiltonTax.Net
-Steven the Tax Guy Hamilton Tax and Accounting LLC (224) 381-2660


Sam Schlacter

Zephyrhills, Florida

Feb 04 '13, 04:52 PM


@Steven Hamilton II - You can find "at least $100" mistake in my tax return? Really? Please do not reduce the quality of this discussion by such juvenile personal attacks. You can loath as much as you want but please don't get personal.



William Donaldson

Clemson, South Carolina

Feb 04 '13, 05:26 PM


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 ;)



Steven Hamilton II Verified Moderator

Real Estate Investor from Lake Villa, Illinois

Feb 04 '13, 07:21 PM


Originally posted by Steven Hamilton II:
@Sam Schlacter, I bet you that I could find at least a $100 error or missed deduction on your tax return.

Sam Schlacter,

I DO NOT engage in attacking anyone. I was not being being juvenile or personally attacking. I was simply stating that an accountant with my experience can find you missed deductions or an error whether it was intentional or not.

You can take my words how you want; however, I know that odds are in my favor when it comes to checking a tax return.

@William Donaldson was correct. I was not loathing and you are over reacting. I said I loathe TurboTax as it cannot possibly give you the knowledge you need to prepare a complex tax return so many individuals miss out on a great sum of money per year.

-Steven THE Tax Guy



Medium_hta_logoSteven Hamilton II, Hamilton Tax and Accounting
E-Mail: [email protected]
Telephone: (224) 381-2660
Website: http://www.HamiltonTax.Net
-Steven the Tax Guy Hamilton Tax and Accounting LLC (224) 381-2660


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