Allocating common deductions when you own multiple properties

8 Replies

When I have a common expense such as buying a tool (i.e. a lawn mover) that I use for multiple properties, how do I allocate the deductible expense to the multiple properties I own? Based on net rental income? 

Originally posted by @John Watson :

When I have a common expense such as buying a tool (i.e. a lawn mover) that I use for multiple properties, how do I allocate the deductible expense to the multiple properties I own? Based on net rental income? 

Any reasonable methods is fine.

So it can be based on the income, expenses, “actual usuage”. 

 In the most simple situation, at the end, all the activities are netted to determine your net loss or income so it’s not that important how you allocate. 

Make it an OFFICE EXPENSE:  Equipment: Lawnmower (if it is a cheap lawnmower)   Or, make it a Fix Asset Account which you can depreciate each year if it's a riding lawnmower.  

Nancy Neville

A reasonable method is fine. General expenses should be allocated across all your rentals, but if there may be a more practical approach. Speak to your CPA.

@John Watson

Four methods are most common:

1. Divide it evenly between the properties - best if all your properties are similar.

2. Assign it 100% to the biggest property - makes sense if you have one 12-plex and five SFHs.

3. Prorate it based on rent collected.

4. Prorate it based on the original basis (value) of the properties.

Most of the time, it does not matter, but sometimes it does. For example, if you end up having excess losses that carry forward from year to year, and then you sell one of the properties - then the allocation of overhead expenses will matter.

That said, if you want to simplify your bookkeeping - stick with #1, even distribution.

Originally posted by @Account Closed :

Make it an OFFICE EXPENSE:  Equipment: Lawnmower (if it is a cheap lawnmower)   Or, make it a Fix Asset Account which you can depreciate each year if it's a riding lawnmower.  

Nancy Neville

Fixed assets would be an unnecessary complication. We already had a de minimis $2,500 exception, and now we have 100% bonus, and Section 179 is now available to landlords. No need to depreciate equipment.

Here is what I recommend to track Tools and other expenses that are not related to any specific property. In this scenario say you are using QuickBooks - Class feature:

Create 2 new class:

  • Split between Properties
  • Overhead (office) expenses not related to any properties

AT the end of the YEAR:

Split the total expenses between properties. It depends if you are a partnership, S-corp or C-corp.

As to overhead, with some of our clients, we split it as well after the tax returns are filed, that we know what the real bottom line was for each property.

If you are starting out, keep it simple.