I'm closing on my 2nd property next week. It happens to be a 9 unit building, 2 units of which are commercial. It is situated at a 4 way intersection. The 2 commercial units have their own addresses (313 and 317 Market St.). Physically in between the entrances to those is a stairwell that leads to 6 apartments on the 2nd and 3rd floors. Those are all under 315 Market St. And then for some reason there is an apartment that is accessible from the other street so that's the 4th address for the same physical building.
I am wondering what is required from a tax perspective and what is recommended from a sanity and business perspective for tracking expenses and reporting them to the IRS due to the different addresses? My wife and I plan to use Quickbooks for tracking expenses and income. I plan to make each unit a separate entity (I believe Quickbooks calls them classes) in the software for tracking rent and expenses per unit.
But should I also report on them for tax purposes as 9 separate units or should I roll them up into 4 because that's how many separate addresses there are or should I roll everything into 1 property on the schedule C come tax time because it's one physical building with one mortgage, etc.?
As background info, my first property was a house with a garage apartment so I have been tracking those 2 units separately and reported them separate to the IRS because they not only have separate addresses but they are physically separate dwellings despite 1 mortgage payment, etc. Should I continue to apply that to this multi-unit building? And, as a hypothetical, in the event that I get another multi-unit building in the future that truly has a single address, other than apartment numbers, how would you answer the same questions for that situation?
I have 10 units on 4 lots and use Quickbooks. What we have done is created a 'class' for each unit so we can account for operating income and expense by unit. For depreciation, we track them by primary address, meaning the one the tax assessor uses. For instance, on one lot we have 2131, 2131 1/2 A, and 2131 1/2 B. Each number is a class, but for the county, each building is a unit so we have 2131 and 2131 1/2, without regard to A or B for capex. As far as allocating interest expense, since all 10 are in one note, the accountant and I will do a journal entry based on the basis value of each physical property.
Hope this helps.
Rental activities are typically reported on Schedule E. Could you tell us why you are reporting on Schedule C?
I agree that you want separate income and expense tracking for each property, regardless of its address. For the second floor apartments, how do your tenants get mail? Is there a separate postal address for each apartment that you could use as a distinguishing factor for accounting purposes?
yes schedule e. My mistake. However my uncle used schedule c for 2013 taxes. I don't recall his reasoning but I do remember he said that schedule c is more conducive to the home office deduction.
6 of 7 apartments use 315 market st apt X as their address. The other apt has 216 Columbia st as it's address.
How much granularity is the IRS needing for separating expenses and income?
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing