Rental Property Receipts, Tracking Expenses & CPA's

Tax, SDIRAs & Cost Segregation
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Rental Property Receipts, Tracking Expenses & CPA's

Matt Moldenhauer
Investor · Springfield, MO · Member since 2016 · 88 posts · 29 votes

I'm curious to know how other people handle their receipts with their CPA. This past season was the first time we claimed our first rental property on our taxes. We only had a few receipts to turn in to our CPA, so i just gave them to her in a folder with all of our other paperwork. This next year will be a different story though. We've done a lot of minor things to our rental house and plan on purchasing two more before the end of the year. We will keep all of the houses and expenses separate. Looking at the Schedule E, is that something I should go through my receipts for each property and fill out to the best of my ability? Or should I just hand over the file for each house and let her do all of the work so everything gets classified correctly?

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Brandon Hall
CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes
10y

@Matt Moldenhauer you should not be handing your CPA a folder of receipts unless you are willing to pay double or triple the normal cost for tax prep. You may certainly have the CPA do all of your accounting at year end, but at my firm, that's the difference between an $800 and a $2,500+ bill.

Tax preparation is compliance focused. We take the information you provide us and that we believe we can reasonably rely on, and prepare your returns. It's much more than simply "entering it into our computer" as we are constantly interpreting regs and how much weight to give one code section over another.

If it were as simple as entering it into the computer, everyone would use TurboTax. However as one investor who refused my services due to price is now finding out (I know this only because I saw him post a couple days ago asking for "free" help) the tax code applicable to real estate is quite complicated and there is a lot of behind the scenes work that our clients often don't see.

That said, I generally want an itemized listing (in excel, not paper receipts) of expenses in their various categories. I request this for the reason you cited - I want to double check how the client classified repairs, improvements, meals, and travel.

If you're not comfortable with your CPA, interview new ones after tax season. At the end of the day, your CPA should be offering some sort of tax planning or education (that you will certainly need to pay for) rather than solely being a tax prep person. 

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  • Jeff Greenberg
    Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes
    10y

    If you are the keeper of the books, you should be entering the receipt information.  My bookkeeper put all of the information in the proper categories and the CPA gets the summaries or reports.  If you are doing your own books you keep the receipts in case of an audit.  

    I am not a CPA or an official bookkeeper so consult a professional.

    1Reply
  • Steven Hamilton IIPro Member
    Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
    10y

    I want you to have your receipts. I want summaries. I WILL NOT dig through your receipts unless you want to pay a lot more.  

    [email protected]224-381-2660
    3Reply
  • Kyle J.
    Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
    10y

    I don't give my tax attorney a single receipt for any of my houses, rehabs, etc.  I tally them up and provide him the totals.  He charges way too much per hour for me to just hand him a folder full of receipts and expect him to do the adding. 

    0Reply
  • Matt Moldenhauer
    OP
    Investor · Springfield, MO · Member since 2016 · 88 posts · 29 votes
    10y

    Excuse my ignorance here, but isn't that what I pay you for? To go through things and see if everything is being sorted correctly, if things are being categorized as repairs or improvements, etc? I'm not trying to be a smartass, but from what I've seen that's one of the toughest parts. Figuring out if fixing X amount of roof qualifies as a repair or what. I see seasoned investors and CPA's give advice, only to be set straight by another more experienced CPA on these threads. If a CPA is incorrect, how am I to be expected to categorize things the right way? You would basically just be plugging into the computer what ever I give you, making me liable for my own ignorant mistakes. If I'm wrong here or misunderstanding things, please by all means set me straight. Maybe I need to do more research and dig into the tax code more.

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  • Brandon Hall
    CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes
    10y

    @Matt Moldenhauer you should not be handing your CPA a folder of receipts unless you are willing to pay double or triple the normal cost for tax prep. You may certainly have the CPA do all of your accounting at year end, but at my firm, that's the difference between an $800 and a $2,500+ bill.

    Tax preparation is compliance focused. We take the information you provide us and that we believe we can reasonably rely on, and prepare your returns. It's much more than simply "entering it into our computer" as we are constantly interpreting regs and how much weight to give one code section over another.

    If it were as simple as entering it into the computer, everyone would use TurboTax. However as one investor who refused my services due to price is now finding out (I know this only because I saw him post a couple days ago asking for "free" help) the tax code applicable to real estate is quite complicated and there is a lot of behind the scenes work that our clients often don't see.

    That said, I generally want an itemized listing (in excel, not paper receipts) of expenses in their various categories. I request this for the reason you cited - I want to double check how the client classified repairs, improvements, meals, and travel.

    If you're not comfortable with your CPA, interview new ones after tax season. At the end of the day, your CPA should be offering some sort of tax planning or education (that you will certainly need to pay for) rather than solely being a tax prep person. 

    5Reply
  • Matt Moldenhauer
    OP
    Investor · Springfield, MO · Member since 2016 · 88 posts · 29 votes
    10y

    @Brandon Hall Thank you, that was exactly the kind of answer I was looking for. You were the the "experienced CPA" I was referencing in my post. It seems like no matter what search I do I end up running across a post of yours. Good stuff. 

    I hope I didn't offend any tax professionals either with my comments. I realize there is MUCH more to the job then what goes on at tax time. That's why I was trying to get a better understanding of the process. You guys eat, breathe, and sleep this stuff. I know enough about tax code to know it's better left up to the professionals. That's why I was really confused at how I could be trusted with classifying every expense correctly. 

    Tax planning and strategy is what I'm really interested in. I read somewhere in the past, maybe even one of Brandon's comments about getting creative. Waiting to make a larger repairs at the end of the year and possibly trying to break the job up to see a more of an immediate tax savings.  

    Is there something I can read that maybe elaborates a little more on the IRS Schedule E expenses?

    Thank you EVERYONE for all of the answers. 

    1Reply
  • Brandon Hall
    CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes
    10y

    @Matt Moldenhauer I appreciate the kind words :)

    Tax planning is best done over a several month time frame with a savvy CPA. I include other professionals in my tax planning engagements, such as CPAs and specialized financial advisors. It's better to deliver a holistic package. 

    There are plenty of books that talk about various tax strategies. The best ones are often the most dry and will put the average reader to sleep. 

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  • Jeff Greenberg
    Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes
    10y

    Either I or my bookkeeper provide a general ledger with my other tax docs. If I have any questions about the correct category I will make a note to discuss it with my CPA.

    0Reply
  • Matt Moldenhauer
    OP
    Investor · Springfield, MO · Member since 2016 · 88 posts · 29 votes
    10y

    Thanks for all of the advice. Yesterday I downloaded a spreadsheet that has all twelve months and keeps a ledger on all income and expenses. It seems easy enough to use, even though I know I'm not 100% accurate lol. 

    1Reply
  • Dave Toelkes
    Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
    10y

    @Matt Moldenhauer,

    Since this is your first rental property, you want to also provide your CPA a copy of the HUD-1 settlement statement for your property purchase. Also give your CPA an inventory of all the appliances in the property (refrigerator, range, washer, dryer, dishwasher, microwave) that conveyed with the property and their age. If you have a copy of the tax assessor's property card or tax assessment for the property, that will be useful too. Your CPA will want all these items to accurately develop your asset depreciation schedules.

    2Reply
  • Matt Moldenhauer
    OP
    Investor · Springfield, MO · Member since 2016 · 88 posts · 29 votes
    10y

    Woah @Dave Toelkes, that just flew right over my head. Actually last year was our "first year". My wife spoke to her last year about it, but she said we had a couple of years to decide if we wanted to stick with, so we didn't claim it for 2014. 2015 was the first year we filed on her old primary house(our new rental). We are/did depreciate the structure. I don't recall her saying asking anything about appliances though. Maybe she just made assumptions? I also do not recall any mention of a HUD-1 Settlement Statement. From a quick Google search i'm not sure how that would have applied to us though? We didn't take out a loan or refinance anything? The existing loan on the house is an FHA from 2010.

    This is one of my biggest fears when dealing with tax professionals, lenders and realtors. I feel like i'm always the one leading the conversation, when in reality i'm the ignorant one. I try to do as much research as i can, but it feels like I sometimes have to pull the information out of them. I try to be very clear and precise in what i'm looking for and what my goals are and just when I think I have my answers I'll ask something else that they should have answered with the information I had already given them. If scares me to death to know what i'm not being told because I didn't know to ask...

    1Reply
  • Cameron Skinner
    Investor · Panama City, FL · Member since 2015 · 378 posts · 183 votes
    10y

    @Matt Moldenhauer back in the day we use to call it solitaire put all your receipts in a box until year end take the expenses on schedule E and write the name of the category at the top of the page add one called miscellaneous, then just put the receipts in the category that best fit.  I use to get my kids involved as a game.  Then add them up write the total on the paper and staple the receipts to the back and keep for your back up.  Then put the totals in a spread sheet or just hand write on one sheet of paper.  Your accountant will love you.

    Hope this helps, good luck

    0Reply
  • Sylvia B.
    Rental Property Investor · Douglas County, MO · Member since 2014 · 1k+ posts · 1k+ votes
    10y

    Ugh @Cameron Skinner! Why would you wait until the end of the year? Categorize those expenses as you pay them, while you know exactly what they are for.

    Do you only have one property with few expenses? Maybe it would work then. I have 10, and if I waited until the end of the year to sort things out it would take me a month and I'd certainly get some of it wrong.

    1Reply
  • Cameron Skinner
    Investor · Panama City, FL · Member since 2015 · 378 posts · 183 votes
    10y

    @Sylvia B. you can just go ahead write category on the receipt before you through it in the box just write your categories on the lid, but with 10 you probably need to learn quickbooks.  But actually for my clients who just refused to to keep current books this really worked well. I had a contractor with hundreds if not thousands of transactions every year and he had a bank account that returned his canceled checks with his statement he would write his categories in the memo column on the checks and then play solitaire once a month when his stamens came in the mail.

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  • Andreas W.
    Durham, NC · Member since 2013 · 502 posts · 215 votes
    10y

    @Matt Moldenhauer

    Do you mind sharing what spreadsheet you downloaded?

    1Reply
  • Phil Moeller
    Rental Property Investor · Maria Stein, OH · Member since 2015 · 7 posts · 7 votes
    10y

    Our approach thru 2015 was to keep our own receipts, have a detailed excel file tracking expenses, then provide a summary (by property and by expense/income category) to my accountant in the format he/she prefers. This saves them time and us money. The itemized list allows them to go through things quickly, and we highlight the items we have specific questions on. 

    In 2016, we'll use the same receipt approach but switching to Quickbooks, only because the online version pulls in information and saves us ~2 hours per week in updating our books vs excel. Our accountant also prefers Quickbooks and I've learned a lot about accounting by using it. 

    1Reply
  • Matt Moldenhauer
    OP
    Investor · Springfield, MO · Member since 2016 · 88 posts · 29 votes
    10y

    @Andreas W.

    Here you go. Just click on the excel link.

    http://www.fastbusinessplans.com/business-template...

    I'd be interested to know what other people think of the little program.

    1Reply
  • Dave Toelkes
    Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
    10y

    @Matt Moldenhauer

    I assumed that your property was a new acquisition.  You did not tell us that you converted a primary residence to a rental.  That changes my response some.  I also don't understand your comment

    "My wife spoke to her last year about it, but she said we had a couple of years to decide if we wanted to stick with, so we didn't claim it for 2014. 2015 was the first year we filed on her old primary house(our new rental)."

    What did your wife speak to "her" about, and what do you have a couple of years to decide?

    The HUD-1 is the settlement statement you received at settlement when you bought the property. It is a form that itemizes all the items that you and the seller paid for when you bought the house. Even though you used FHA financing, the settlement was documented on a Form HUD-1. There are certain items on the HUD-1 that when added to your purchase price become the tax basis for the property. It may not matter if the value of your property dropped between the purchase date and the date you converted the primary residence to a rental. For this conversion, the tax basis for depreciation purposes becomes the LOWER of your actual cost basis or the FMV at the time of conversion. What did you or your CPA do to establish the depreciation basis for the property?

    As to the appliances, some investors like to separately depreciate appliances that convey with a rental property purchase.  In this case, the depreciation basis for the property is allocated between the dwelling structure and each appliance.  Other investors don't bother trying to figure out thrift shop value for used appliances for an insignificant increase in the depreciation expense, but instead, choose to start depreciating each appliance as the existing appliance is replaced.  In some taxing jurisdictions, you have to file a personal property tax return for rental property and report the value of existing appliances for your local property taxes.  Each county in my home state of SC where I have rental property does this.  

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    10y

    @Matt Moldenhauer, I think what threw @Dave Toelkes and me too was the " 2 years to decide" comment.  My guess is that the acct was referring to the 5 year look back to determine if you lived in the property two out of the last five years. If not you've got the 1031 option.  If so then you could sell and take the primary residence tax free exemption.  But that would not exempt you from filing all of your income and expenses from day one that you converted it.  The way you state it is a little confusing but if you ran that property as a rental for a year or two before filing it on your sched E you need to seriously talk to your accountant.  

    The 1031 Investor5137 Reviews
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  • Andreas W.
    Durham, NC · Member since 2013 · 502 posts · 215 votes
    10y

    @Matt Moldenhauer

    Thank you for posting the link. The spreadsheet is a cleaner version of what I made for myself. I will switch at the next break point.

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