Sched E landlord, where to best deduct business expenses: education etc?

5 Replies

Hi Folks,  Last few years I just added up my general business expenses: education, technology, subscriptoins etc, divided by my number of Sched E houses and added an expense called General business expense onto EACH house.

I never liked that tactic.  In a better world I'd pull all my rentals out to a partnership return and just a K-1 onto my 1040, but I'm not there yet.

What is a better tactic than an expense put onto each house for the business?

I really think the answer requires more information but I will share with you how I handle this. I own 26 rental units spread over 6 properties. 

In my opinion, and in the opinion of the CPA that does my taxes, the expenses you are talking about do not go on a Schedule E. The schedule E is for expenses related to the annual operation of the specific property such as repairs/maintenance, etc...

I am a licensed real estate agent and I file a Schedule C for that "business" with my associated 1099 from my broker. This is where I put all my expenses for technology, utilities (cell phone), training, licenses, etc...these expenses can't be tied directly to a specific property. If you aren't already filing a Schedule C then you need to determine if it's worth tracking the expenses you are asking about if there is no self-employment income that you can offset. This is the part that needs more details on your specific situation.

As far as setting up the partnership and the k-1, I have looked into that and basically between my attorney, my accountant, and myself, we determined that would only result in higher fees to the IRS for more returns, higher fees to my accountant for more returns, and higher fees to my attorney for the legal work associated with setting up the separate entity. There are also the filing fees for the new entity. This adds up fast and basically just takes away from the money going into your pocket. 

My properties are all held in one simple realty trust and I have one checking account. I have $1M in liability on each of my properties and I have full confidence in my business structure that there is no reason to try and complicate the situation with partnerships, LLCs, S-Corps or any other corporate entity that seem to be in favor in any given year. 

I  hope this helps...

Thanks Rob,  I shied away from Sch C in the past since I don';t have any business income where you do from your Agent business.  Ok you gave me an area to investigate,, Sched C.

I am doing the same as Curt (well, as he was a year ago).  I don't have schedule C income outside of what is reported on schedule E.  

I am comfortable with splitting many things across the schedule E properties where they can generally apply to all of those properties - but don't have a good way to deduct things like travel expenses / mileage for visiting potential properties.  Those certainly do not apply to a particular property (unless I buy it).  

Any other suggestions for handling general expenses?

beware travel to houses you haven't bought that travel is not deductible.  Just like time to pick a stock to buy is not deductible. 

I'm guessing you could if you had a profitable schedule C business but not re sched E.  

Neat topic. Very relevant as we all do our yearly tax rituals (whatever yours may be)...

The Schedule E is not ideal, but for round peg expenses (that are legit "ordinary and necessary" expenses, and the IRS and tax courts have lots of info, be it regs, opinions, and decisions on that) that do not fit in their Schedule E round hole categories, I try good ole' Line 19 and I even write in a couple (be it condo dues or cell phone) that are major contributors to the category in the small space provided. I also do the pro-rata allocation like others for general items not attributed to one property. I am part-time small scale landlord and just do the 1040 with Schedule E. Rob has a good point about professional advice, too.

Also, I see a neat looking new BP tax book and also have used Fishman's Nolo on Tax Dedcutions for Landlords the last few years, too (disclosure: did a work for that publisher but no interest in the tax title or the BP book mentioned, one I still need to read).  Best of luck..

From the instructions to Schedule E

Line 19

Enter on line 19 any ordinary and neces-

sary expenses not listed on lines 5

through 18

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