TurboTax or Human - Help Me Choose!

29 Replies

I have one property that I purchased in 2019 from a turnkey provider, so there were no expenses on my part other than getting the mortgage. The first tenant moved in in January, so there was no income in 2019.

Is the depreciation etc. something I need a professional for yet, when I haven't had any significant income/expenses on this property?
The rest of my taxes are straightforward. This property would be the deciding factor on if I hire someone, or stick with TurboTax.

Thanks everyone!

You can easily do it on TurboTax premier edition.

Queue 100 CPAs replying "YOU MUST USE A CPA!!"

@Chris Wilkening

Dejavú -20years ago -no BP around then. I did a turbo tax return and paid a cpa to review it-saved about a grand and money was worth more then.  I have been using the cpa ever since. Still think he does it better than me and I get advice and he provides some insurance that a mistake on my part is not “fraud” but a typo by him. Do what you do best -hire the rest. 

Nearly 100% of the prospects who approach my firm and DIYed their returns in the prior year are either preparing their returns in a materially incorrect manner or leaving advantageous strategy on the table.

DIY software doesn't turn you into a tax professional any more than reading Web MD turns me into a medical professional.

That said, if you are just starting out, you can probably get by self-preparing your return until you've reached critical mass and can absorb a rock star tax professional into your budget.  And be prepared to have your past 3 years of returns amended by said professional at that point.  : )

Originally posted by @Michael P. :

You can easily do it on TurboTax premier edition.Queue 100 CPAs replying "YOU MUST USE A CPA!!"

You are right. Here is a sample list of other things you can easily do yourself:

  • cook homemade food
  • change oil, tires and bulbs in your car
  • tailor your clothes
  • complete legal paperwork
  • build a fence or a deck
  • etc.

No sarcasm here, I'm serious. If you're either willing to obtain necessary knowledge/skills to do it right or accept subpar results from "just doing it" - a lot of things are DIY-able. Tax preparation is one of those things.

I imagine a human will be completing it either way...you at your computer, or the tax preparer at his or hers :-)

You may find out that you don’t have anything to file for this property this year, as it sounds like the costs you incurred in 2019 are startup costs that have to be amortized beginning in 2020.  Or maybe your expenses don’t have to be amortized, and you can safe harbor them to a greater tax advantage.  

A tax preparer can tell you those things; TurboTax is unlikely to.  Good luck!

@Chris Wilkening you can sign up put in information and not pay a dime until you are ready to file. You can literally see the results as you go along. I’ve found that Turbo tax knows the questions to ask investors and is very thorough. In your situation you’ll be ok to use it.

You'll need to submit correct information either way - to a CPA or software.

I don't see how it's like someone preparing your food (unless you provide all the ingredients, chop it up, provide the stove, etc) or working on your car.   I still have to compile the info.  What does a cook or tailor or doctor or mechanic ask you for?  Certainly not a years worth of accurate and correctly compiled financial data.  

Maybe I need to be educated on how an EA or CPA saves me time if I have to go through all the work to give them all the information anyway? 

@Chris Wilkening

I have 9 SFRs and do all my taxes on turbo tax. It’s simple. It will walk you through everything including depreciation. And if you are still confused, then call their tax advisors and ask them whatever you have a question about. I’ve had questions in the past and they were great over the phone.

@Chris Wilkening

I would do it with a CPA for the reasons that others have mentioned. But maybe you can survive if you only have one property with minimal activity.  

Some thoughts to ponder: 

I value my time somewhere between $200 and $300 an hour. I factor that in when I decide whether I want to do it myself. For example, I have a friend that's very frugal. Among other things, he likes to buy parts online and bringing it to a car mechanic. The idea is that it's cheaper to get it online then having the mechanic order it. I would never do that because it's most likely the case that me ordering, picking it up, and delivering to the mechanic will wipe out any savings I could've gotten. And what if I order the wrong part or if the part is defective? Then I waste more time doing less productive things. 

It's one reason why I hire lawyers even though I'm a lawyer. While I think there is a value in knowing all parts of your business, I simply do not have enough time to research every issue that can pop up in my businesses or investments. It's not so much that I can't do it --- it's just inefficient use of my time. 

A more extreme example of this is Warren Buffett and his private jet. Being the frugal guy he is, he was always critical about company executives relying on private jets to get around. The story goes that his advisory team finally twisted his arm enough to buy a jet because they saw the value. He first named it "The Indefensible" because he thought it was absurd for him to ride in them given his past criticism. But after a year or two, he changed its name to "The Indispensable" because he realized the plane made him and his team much more efficient. 

Long story short, maybe Turbo Tax is fine. But I would also look at it long term and ask yourself if you are using your time efficiently. Not sure what you do and how you value your time. But it might be worth it to go with a CPA if you really thought about it. 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

@Chris Wilkening

You said you bought a turnkey rental but did not have a tenant in place until January.  

When did you purchase the property and was the property ready and available for rent on your first day of ownership?

If you purchased last year, and immediately began marketing the property for rental use, then the property was in service as a rental for a portion of the year last year. You do have deductible rental expenses for last year -- at the very least some depreciation expense - despite not having any rental income last year. You probably paid some deductible property taxes at settlement and purchased a rental dwelling insurance policy (the policy premium is deductible if paid last year). If the rental property ownership makes you a member of a home owner's association, then any HOA fees you paid or prepaid last year are also deductible.

I agree with the others who say TurboTax can do it for you -- but only to a point. I agree that TurboTax Premier can handle nearly all your rental property issues with their guided interview.  BUT, if you don't know enough to correctly answer the questions the guided interview will ask, then it is probably best if you get a tax professional to do it for you the first time, or the first couple of times.  

Originally posted by @Steve Vaughan :

You'll need to submit correct information either way - to a CPA or software.

I don't see how it's like someone preparing your food (unless you provide all the ingredients, chop it up, provide the stove, etc) or working on your car.   I still have to compile the info.  What does a cook or tailor or doctor or mechanic ask you for?  Certainly not a years worth of accurate and correctly compiled financial data.  

Maybe I need to be educated on how an EA or CPA saves me time if I have to go through all the work to give them all the information anyway? 

I don't think anyone has ever assumed that using a CPA is about saving time. It's more importantly about ensuring you're maxing out the available returns allowable. Gathering the information and data is one thing... using it in the most advantageous way possible is another.

I agree with a lot of other posters about the professional being the way to go. I don't think you'd necessarily be in a terrible spot by using TurboTax (the rental property edition, whatever that is) this year, but ultimately the investor-friendly CPAs are going to be the only ones who have the most intricate knowledge on how to max out your potential returns, ultimately being what you're truly owed on the property. The laws are changing constantly, and they know them. If it's a matter of paying like $1000 for a CPA to do your returns versus $500 for TurboTax, I think the $500 difference is worth it all day long for a) time save, b) maximizing return potential, c) less chance of audit, and d) peace of mind.

Originally posted by @Ali Boone :
Originally posted by @Steve Vaughan:

You'll need to submit correct information either way - to a CPA or software.  

Maybe I need to be educated on how an EA or CPA saves me time if I have to go through all the work to give them all the information anyway? 

I don't think anyone has ever assumed that using a CPA is about saving time. It's more importantly about ensuring you're maxing out the available returns allowable. Gathering the information and data is one thing... using it in the most advantageous way possible is another. 

Thanks. I wont bother getting educated on that then. I was using Mr Plaks' examples of do you prepare your own food? Change your own oil  or bulbs in your car etc. Things we hire out to save time.  

TurboTax Premier / Deluxe that will handle most people's residential rentals is only max $80, not $500.  The peace of mind difference in your example is $920. 

I get what your saying but don't see the benefit.  Mine would be over $8k but I'm probably not normal and won't be changing if it's not going to save me time.

 

Does TurboTax allow for using cost segregation studies? What about buildings with more than 4 doors? Thanks.

@Chris Wilkening IMHO it’s always best to use an accountant. For one many accountants can cover their fees sometimes in deductions or structures you never would have thought of and secondly most important just like an having an attorney in court . Always best to have a professional buffer .

Lots of people can do lots of things but alway better to have few people do fewer things . Focus on what your best at - and let the pros do what their good at.

@Chris Wilkening

I’m not a cpa. I started with TurboTax, but I recommend you skip that garbage step. Get a cpa who also owns rental property in your state or better yet you area. My CPA has more than paid for himself and is a high value member of my team with loads of real world advice.

I tried Turbo Tax once. It couldn't figure out how to repay the $500 Obama tax that I incurred every year for 15 years after I sold my first home. 

It also couldn't help me with expenses for being a pilot and working overseas. 

One year I got hit with a $16,000 bill from the IRS. My CPA converted it to a $1200 repayment. The next year I was hit with a $21,000 bill from the IRS. CPA made it disappear. 

No TT for me.

I'm pretty sure TurboTax is fine for those with very simple financial life. 

However, once you have a rental property, things will get complicated really fast. It starts from the day you purchase the property. Most of us can't tell which item on the closing statement is deductible and which one needs to be added to the basis. Different items get depreciated over different length. I haven't used TurboTax in a long time, but my guess is it does not categorize automatically for you. 

Another tricky thing is when you spend money on some repairs/improvements. While some are straightforward, other items can get insanely complicated. Some of the items that you usually depreciate over X years might be accelerated by using Bonus depreciation, De Minimis Safe Harbor, Section 179, etc.

Chances are you are not going to save a ton of money hiring a CPA for this year, but I still think it's a good idea to get a good one. One reason is to have an accurate tax return, but also to educate yourself on how rental property is taxed. And we don't know what we don't know, so when you talk to a CPA, maybe you get some advice on things that are unrelated to real estate. 

Above is just my opinion.

Originally posted by @Chris Wilkening :

I have one property that I purchased in 2019 from a turnkey provider, so there were no expenses on my part other than getting the mortgage. The first tenant moved in in January, so there was no income in 2019.

Is the depreciation etc. something I need a professional for yet, when I haven't had any significant income/expenses on this property?
The rest of my taxes are straightforward. This property would be the deciding factor on if I hire someone, or stick with TurboTax.

Thanks everyone!

 If you do use Turbo Tax consider purchasing their audit defense product. It is great to mitigate the cost and confusion of IRS letters; however, it won't mitigate poor record keeping. 

Originally posted by @Dan Schwartz :

@Michael King what in the world is an “Obama Tax,” and how have you been paying an Obama tax for 15 years?

In 2008 when my wife and I bought our first house, we received a first home buyers grant of $3750 each when we filed our taxes. I was new to the country and she had never done her taxes before (her mother had done them up til that point), so we just assumed it was a normal tax return. I was earning next to nothing as a flight instructor so my wife spent the cash on furniture. Yay (not). 

2 years later we had a baby and needed a bigger home, so we sold this house to friends of ours. But before they bought it, they moved in and paid us rent for 2 weeks. 

Apparently, the first home buyers grant - that we didn't even know we had - had strings attached. It instantly became an 'interest free loan' courtesy of BO, that had to be repaid at a minimum yearly rate of $250 per person. I found that out when we submitted our taxes for 2010 and had a bill for $500 plus penalties plus interest, and a lovely letter from the IRS explaining that we now had a loan to repay. So that was quite the surprise. In spite, I have been paying it down at the minimum ever since because I sure as heck didn't want that A hole having that money. I do have a good mind to pay it back in its entirety now though, since the greatest leader ever to grace the WH is now at the helm, and I would love for him to use it.  I suppose there's probably only $2-3k left on the 'loan'. 

Ok @Michael King , so let’s review.  

You bought a house in 2008, using a Bush-era program that was written effectively to be an advance of your federal taxes due, which needed to be repaid over 15 years beginning in 2010.  

That program was modified in 2009 (yes, we consider that Obama-era, since he was a Senator in 2008 and president in 2009) to become aN even-larger refundable tax credit that never would need to be repaid.  

And you call it an “Obama Tax.”


cool story, bro.  

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