Handling a future rental that is a primary for next 12 months

[Lauren Heinen]

Hi! Looking for recommendations on bookkeeping/account management for a single family home. We are closing on it on Dec 21st and will live in it for a year, then rent it out as a long term rental. Are any of the repairs, purchase price, mortgage payments, etc considered business expenses or should they all be kept under our personal checking account? (We are just starting to get good at bookkeeping for our properties so I want to continue that trend)

Thanks!

[Ricky A.]

I'm not a CPA, so definitely seek more qualified advice, but my understanding is this:

- Purchase price (plus certain closing costs) will create your initial basis in the property.  The basis is needed to calculate depreciation once you convert to rental.  So keep a copy of your settlement statement, so your CPA can accurately calculate this.

- Minor repairs will not be deductible while it's your primary residence, but will be deductible once you've converted to a rental.  You can consider postponing any minor repairs that you can (assuming they don't create more expensive repairs later).  Major repairs/renovations, however, could add to your basis, so get advice from your CPA and keep records.

- Once you convert to a rental, the interest portion of your mortgage payment will be deductible.  Also keep track of annual payments like property taxes, as a prorated amount may be deductible based on when the property goes into service as a rental.  [Note, this is from the business perspective...some of these items may still be deductible on personal taxes if you itemize].  Side note, when you convert to a rental, you'll also want to replace your homeowners insurance policy to a landlord policy.  

- I assume the rental will be reported on your personal taxes via Schedule E.  If so, you don't have to have a separate bank account (since the rental is not in another entity's name).  However, when you convert to a rental, you may want to use a separate account just because it will make bookkeeping easier.