1st Rental Tax Filing

Philadelphia, Pennsylvania
Tax, SDIRAs & Cost Segregation
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1st Rental Tax Filing

Andrew Tischbein
Member since 2022 · 2 posts · 2 votes

Hello - my wife and I just finished up our first year with our rental. We converted our last home into a rental and had it rented out for the majority of 2024. This is our first time going through tax season and I'm looking for guidance and advice on the best way to do it. Currently the rental's mortgage is in our own names and not directly under our LLC. So we were filing it using a Schedule E on our personal tax return. If I did everything correctly, it is showing that we owe additional taxes on the rental property. We achieved a net income of just over $2k from the rental but the way it looks to me we'll be paying more than that back in taxes? Has anyone run into this same problem before? My initial assumption is to make sure the rental is setup in our LLC going forward, but hoping to get some advice how we can best finish this year out.

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Stephen Nelson
Accountant , CPA, MBA in Finance, MS in Taxation · Redmond, WA · Member since 2025 · 172 posts · 135 votes
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You need to make sure you're following the Section 280A rules if you converted a personal residence to a rental. I.e., you're not using the "regular" Section 469 accounting rules. You're using a different, more restricted set of rules that probably limit your deductions to your income because you have a "mixed use dwelling."

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  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    1y

    @Andrew Tischbein

    hello - i would consult a CPA

    good luck

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  • Stephen Nelson
    Accountant , CPA, MBA in Finance, MS in Taxation · Redmond, WA · Member since 2025 · 172 posts · 135 votes
    1y

    You need to make sure you're following the Section 280A rules if you converted a personal residence to a rental. I.e., you're not using the "regular" Section 469 accounting rules. You're using a different, more restricted set of rules that probably limit your deductions to your income because you have a "mixed use dwelling."

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  • Charles Perkins
    Member since 2024 · 222 posts · 161 votes
    1y

    It sounds likely that you haven't recorded assets nor taken 1st year depreciation.  You'll want to talk to a good tax specialist to determine this and make sure you are properly reporting income and expenses.

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    1y

    @Andrew Tischbein You're on the right track, and yes—many first-time rental property owners are surprised when their rental shows a net income and still increases their tax bill. Here's what's likely happening:

    Even though you made about $2K in net rental income, your tax liability depends on your total income, tax bracket, and how depreciation was handled. If you didn’t claim depreciation on the property (which is a major non-cash deduction), your taxable income from the rental could be overstated. For residential rentals, the structure (not land) must be depreciated over 27.5 years—this often wipes out net rental income on paper, especially in the early years.

    Also, placing the property in an LLC doesn't reduce taxes—it's primarily for liability protection, not tax benefits, especially if you're still filing under a single-member LLC or partnership. For now, keep reporting it on Schedule E, ensure you're properly accounting for depreciation, interest, insurance, repairs, and other deductions, and consider amending if depreciation was missed.

    This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

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  • Dylan Brown
    MN · Member since 2025 · 107 posts · 97 votes
    1y

    @Andrew Tischbein You’re in good company—this is a super common pain point for new landlords. You’re doing the right thing by proactively learning now.

    A few key points that might help:

    • Depreciation is huge—if that wasn’t included, it’s likely overstating your taxable income. Residential structures (excluding land) should be depreciated over 27.5 years, and this non-cash expense often turns net income into a paper loss.

    • Schedule E is correct for reporting rental activity if title is still in your personal names—even if you have an LLC. An LLC alone doesn’t reduce tax—it’s mostly for liability protection.

    • Amending may be an option if depreciation or other valid deductions (interest, taxes, insurance, repairs, etc.) were missed.

    • You don’t have to rush to put the property under the LLC unless you’re ready to handle titling and financing implications. It’s not required for tax reporting.

    If you’d like a second set of eyes or someone to walk through the numbers with you, I help real estate investors with exactly this. Happy to assist.

    Thanks,

    -Dylan

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  • Aaron ZimmermanBusiness Member
    Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
    1y

    I would look to work with a CPA or at least have a second pair of eyes on your return. 

    There's a lot of things you could be missing:

    Depreciation (as others have stated). With that, having the correct basis is extremely crucial as this will impact the amount of depreciation you get to take. It should be the lower of (1) cost plus improvements OR (2) the FMV of the property at the time of conversion. In addition, you will need to break out the property between building and land.

    Mortgage interest, property taxes, insurance (the big 3 that are easily verifiable). 

    Repairs/capex (if there was any during the year)

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  • Jason MalabuteBusiness Member
    Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 897 votes
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    If the property is owned in your personal names and not by the LLC, reporting on Schedule E is correct. A net income of $2k could easily result in additional tax depending on your overall income and tax bracket. Rental income is taxed as ordinary income, and while depreciation helps reduce taxable income, it may not fully offset it. Make sure you're taking all eligible deductions (depreciation, mortgage interest, property taxes, repairs, etc.). Moving the property into the LLC won't change how it's taxed unless the LLC

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