Part time Investor · Middletown, NJ · Member since 2015 · 14 posts · 3 votes
I purchased and renovated a buy and hold rental property located in NJ in 2015. I did a lot of renovations on the property. The property is held under my own name and I'm trying to get organized before I go to see my tax guy.
My question is how can I best organize the deductions so I'm not just handing my tax guy a four inch thick folder of Home Depot receipts?
I understand some of the larger ideas may be depreciable. Really curious as to the best way to organize everything to hand him a nice neat package to ensure I get the best use of my deductions.
Examples of work
All new bathroom
AC compressor
Carpet
Large tile floor
Roof repairs
Lots of cleanup (50 yards of dumpster)
HW heater
Paint
Kitchen Cabinets
Granite counter tops
Few doors
And all of the odds and ends that go along with all of that. I'm sure I'm missing something.
End of the day purchased the place for 102k and put around 20k into it. I have it rented for 1900 a month so it's doing well for me so far.
Thanks for any input. This is my first BP post!
@George Roxby Unless the expenses on the property are oddly large, it sounds like a pretty profitable B&H to me!
Regarding your depreciation organization, I've never met an accountant who doesn't love a detailed Excel sheet, they're my kind of people. You shouldn't even need your receipts when you meet your accountant, just keep them as backup.
Make every row in the Excel sheet a line-item on a receipt. Then use the following columns for each line-item: unique transaction ID (to distinguish transactions on same day, usually just whatever the retailer uses as their transaction ID), Date of Purchase, Retailer, transaction amount, category of item (painting, flooring, HVAC, etc), room item was used (not necessary for every line-item, but will help you personally keep it straight), and lastly the description of the item. Do not try to do one Excel row per receipt, you have to drill all the way down.
Others may even get more specific than this, and they can chime in if I missed something, but I think with the level of detail above, your accountant will certainly be much happier than receiving a folder of receipts. Additionally, on future projects, you should start the spreadsheet when you start the project and update the spreadsheet as the project moves along, because I imagine that at this point some of those purchases may be a little hazy in your mind as to what exactly they were, and some of the abbreviations used by retailers make it difficult to tell exactly what you bought.
There are two purposes to organizing information about expenses. One is to understand exactly how money was spent on the project, so that in the future you can do a better job of budgeting and managing the work. @Gregory H. describes an effective system for tracking all the required details. The second purpose is to provide information for financial reporting. That may require less detail. Think about whether you want to address both purposes, or just the financial reporting. Ask your accountant how he wants the information reported to him. Then set up your spreadsheet or Quicken to provide the information you both need.
Unless your title is filed AND you've had it 'put in service for rental'
IMO, you can't deduct a thing - - you've been making improvements to an asset.
Deductions, depreciation all stay in the same service year and you would have needed to have the property 'in service' before YE-2015.
The repairs add to the ARV, but never dollar or dollar. It's the difference between the before and after appraisals.
The same would be true if you were to flip and not b&h the unit.
You will need a CPA (not some clerk at H & R), so make the appointment. Take all your docs, purchase, escrow closing, and the stack of receipts and explain the story but don't be shocked if something like the above is heard again.
@George Roxby Unless the expenses on the property are oddly large, it sounds like a pretty profitable B&H to me!
Regarding your depreciation organization, I've never met an accountant who doesn't love a detailed Excel sheet, they're my kind of people. You shouldn't even need your receipts when you meet your accountant, just keep them as backup.
Make every row in the Excel sheet a line-item on a receipt. Then use the following columns for each line-item: unique transaction ID (to distinguish transactions on same day, usually just whatever the retailer uses as their transaction ID), Date of Purchase, Retailer, transaction amount, category of item (painting, flooring, HVAC, etc), room item was used (not necessary for every line-item, but will help you personally keep it straight), and lastly the description of the item. Do not try to do one Excel row per receipt, you have to drill all the way down.
Others may even get more specific than this, and they can chime in if I missed something, but I think with the level of detail above, your accountant will certainly be much happier than receiving a folder of receipts. Additionally, on future projects, you should start the spreadsheet when you start the project and update the spreadsheet as the project moves along, because I imagine that at this point some of those purchases may be a little hazy in your mind as to what exactly they were, and some of the abbreviations used by retailers make it difficult to tell exactly what you bought.
Hope this helps!
I am in the process of scanning in all my receipts now.
So how do you differentiate on the spreadsheet if there are a lot of items (appliances, tools, supplies like wood, nails, etc...) I know all are depreciated at different rates, as well as one may be a repair item and the other may be an improvement item.
The property is in service. It's been occupied by a tenant since August. This is my third rental and I do use a regular account not H&R but I have never been very organized. I usually just hand him all my receipts and statements and he does his thing. I'm fully aware that this is not a good way to run my business but that why I'm here you know 😊
Thanks for the responses I have a better idea how to proceed now.
What about cash transactions?
I had a few people do work for me and just paid them cash with no receipt. Can I deduct that or is that no good?
Paid a guy 2600 to carpet the whole place. No receipt do I still write that off? Or should I just be happy I got it done a lot cheaper than I should have.