All Forum Posts by: Nicholas Aiola

@Irina Belkofer If it's an LLC, that changes things a bit. I didn't see that mentioned so I assumed you were asking as if you owned the property in your name. In that case, I would add the taxes paid before the property was in service to the cost of the property, which will be depreciated.

@Irina Belkofer Since the property isn't yet "in service", it's not technically considered a rental property...yet. For that reason, you can deduct property taxes on Schedule A as an Itemized Deduction and mortgage interest as investment interest (also on Schedule A). 

Things like utilities and rehab costs would be capitalized and depreciated once the property is placed in service. 

Keep in mind, this is under current law; if and when the new tax bill passes, the deductibility of items reported on Schedule A could change. 

@Betsy W. 

1. That's correct. If you're giving the IRS/state money, they'll take it no matter what ;)

2. One thing to keep in mind - property taxes are deductible when paid to the taxing authority, not your escrow account (property taxes paid to reimburse the seller upon closing are deductible). So, you can deduct all property tax amounts paid to reimburse the seller at closing, and the amounts paid directly to the taxing authority or from your escrow account to the taxing authority. 

Re: the $5,000 number. This relates to "start up" costs. You're allowed to deduct up to $5,000 of start up costs (unless the total amount of start up costs exceeds $50,000, then the $5,000 deductible amount begins to phase out); anything over $5,000 must be capitalized and amortized over 180 months. 

Be careful though... Not every expense is allowed to be treated as a startup cost, for example, mortgage interest and property taxes. 

This is where having a good CPA comes in handy ;)

@Betsy W. You're very welcome!

To answer your questions...

1. You can certainly still make an estimated payment for tax year 2017. You have until 1/15/18 to make the payment. However, if you're considering making an estimated tax payment to the state as well, I would recommend paying that by 12/31/17. Why? Because state tax payments are currently deductible on the federal return. Better take advantage of that now since it won't be available next year with the passing of the new tax bill!

2. Rental losses from one property can offset rental losses from another property. Property tax is deductible when paid, regardless of which year it pertains to. If I understand your last question correctly, you're asking if you can deduct expenses before the property was rented out. If that's the case, the answer depends on when your property was placed "in service" AKA considered "ready and available" for rent. "Ready" means liveable (more or less) and "available" means when you advertised the property for rent. Any expenses incurred before the "in service" date generally have to be capitalized and cannot be directly expensed. This makes a huge difference for tax purposes. 

Does this make sense (I know it's a lot to digest)?

@Jody Schnurrenberger Hmm, that's interesting. In that case, maybe they wanted to accelerate their losses. Either way, it worked out for you!

Also, very good point about being careful of which info we disclose and to whom we disclose it. I appreciate the food for thought :)

@Jody Schnurrenberger Definitely no regrets...yet ;)

I wish I could shine a little more light on it for you but, without knowing what else the seller has going on, I'm afraid we're both stuck in the dark. The best I could do is guess... 

My knee-jerk reaction would be that the sellers want to split the sales between 2017 and 2018. It could be for any reason, really; maybe so they're not stuck with a bigger tax bill in 2018, or maybe because they have some big losses in 2017 and they can absorb the profit from the sale. 

If you ever come to find out the reason, let me know. I'm interested!

@Account Closed I award you the most thorough post in this thread yet!

I'd like to ask you a few questions to further clarify the structure and situation before addressing your questions. Would you mind if I PM you to avoid (what I anticipate to be) a healthy amount of back and forth between us in this post? 

@Llewelyn A. Thank you for the kind words and votes! And, of course, for the confidence booster ;)

@Derrick E. I'm happy to help! I commend you for taking the initiative to learn as much as you can.

That's correct. With no incorporation, rental income and expenses would be reported directly on Schedule E (unless you're talking about two non-spouse partners). Each property should be entered separately.

I actually wrote a blog on my site about tax deductions for house-hackers, which lists a good amount of rental deductions for landlords. To name a few - real estate taxes, mortgage interest, insurance, repairs, maintenance, utilities/garbage/water/landscaping/etc. paid by the landlord, and, of course, depreciation. A quick Google search on rental property tax deductions should also yield some good results.

@Derrick E. Essentially, yes. Are you using a software? Usually the K-1 is automatically generated once the income and expenses are entered in the partnership return. Then you would enter the K-1 activity on your personal return.

It could get a little tricky if you're not familiar with tax preparation. In my opinion, hiring a professional pays for itself; incorrect reporting/filing could cause penalties and interest that wind up totalling more than a CPA's fee. But I'm biased, of course ;)