All Forum Posts by: Steve Scherrer

I took another look at IRS Pub 527, Table 2-1 ("MACRS Recovery Periods...").  Sure enough, I missed it the last time I looked at this, but Table 2-1 specifically mentions "waterpipes" as part of the structural components that get depreciated over 27.5 years.

My rental condo is at a point where I need to replace the water supply lines in the unit.  The existing plumbing are the old polybutylene pipes that become brittle over time (30ish years) and are prone to developing leaks.  The cost to re-plumb the unit is about $4200.  The question is, would that kind of cost get depreciated, or is it possible to claim the entire amount as an expense?  The brand that gets installed would have a 25-year warranty, if that is relevant.  TIA.

I moved out of a condo about four years ago and rented it out.  I've kept good records on expenses, improvements, etc, but the one thing that was always a pain was having some kind of log of when I visited the rental property for any reason.  It wasn't easy for me to calculate the mileage deduction come tax time without an accurate log.

I started using something that makes this much easier and automated.  Using If This Then That (IFTTT), I set up a "recipe" (as it's called) so that every time my phone goes to the address of the rental condo, it automatically records a log entry with the time and date in a spreadsheet stored on Google Drive.  Now when I want to calculate the mileage I drove for the rental, I can look at this spreadsheet.  I'll assume that a visit on a weekday during normal work hours was made from my office, which is only about five miles round-trip from my office.  An entry on the weekend or outside normal work hours will likely be from my primary residence, which is about forty miles round-trip.  This obviously works for a simple scenario like mine, but I have to believe that having an automated log of visits to any address could be helpful.

I'm really just starting to crack the surface with things you can do with IFTTT.  Lots of cool things you can do.

Being that the girls are three grades apart, there would be a time where one of them is renting out the other bedroom to someone else.  There would actually only be 1-2 years where both would live in the property at the same time.  After the younger is done with college, I would evaluate whether to keep the property, sell it, or 1031 exchange it to another property closer to me.

I also like the idea of you mention, @Carl C., of having one of the girls also act as property manager.  She could even be compensated for that, and the property management expense could be deducted.

I'm still a relative newbie at all this, and thanks for the responses so far.

Here is a fairly recent article describing something like this, but the scenario in this article is one where the child student lives at home, and the parents charge the child rent for his bedroom, and get some portion of that rent reimbursed by 529 distributions.  The article even has a CPA on record getting quoted about how to do this correctly.

I'm wondering if anyone has done something like this, and what some potential legal issues would be.  The scenario is my two daughters attending the same university.  They are about 3 school grades apart, so there could be something like a 7 year period where at least one of them would live in a rental property that I buy and rent to them.  My intent would be to manage it like a rental property, charging them "market rent", accounting for expenses, depreciation, etc.  I don't think that experience is anything unusual.

Now, add in a potential to use distributions from a 529 plan to cover part of the rent.  There is a certain amount that can be withdrawn from a 529 plan as a qualified distribution for student housing costs ("room and board" costs).  Those costs are usually determined by the university itself, and as I understand it, are usually related to the cost of living on campus in a dorm.

So buy a property that your children live in, run the property as a rental, while taking some part of the 529 distribution that pays for tuition, fees, etc, to also pay a portion of the rent.  Are there any obvious problems with that?

Welcome @William Heath!  I'm a newbie too, just trying to learn how to take the next step to buy an additional investment property.

@Anson Young, thanks for posting that meeting.  I'd like to try to attend too.

@Brandon Hall, thank you so much for your response and taking the time to help out a newbie like me.

It's my understanding that when selling a rental property, that the IRS would expect the gain calculation to include depreciation in the adjusted basis that is "allowed or allowable" (a phrase I've read here and here).  It sounds to me that your basis would be reduced for the "allowable" depreciation, even if you don't claim the depreciation deduction.  Perhaps I'm just confused in my reading of this?

Say you buy a rental property for $100k ($85k building, $15k land), and never claim any depreciation or add any capital improvements that would increase your basis either.  You sell the property ten years later for $110k.  Is your gain $10k?  Or would the IRS claim that since you were allowed to depreciate the original $85k over the last ten years (say that amount is $11k)  and so your taxable gain would be $10k + $11k = $21k?

In other words, is your Gain = Basis - DepreciationUsed, or is Gain = Basis - DepreciationAllowed (whether used or not).  I'm guessing that I'm just reading this wrong, but I'm a newbie so I have to ask a question like this.  :)

This kind of relates to my first question too, where there is unused "banked" depreciation (Form 8582 1c is still negative).  Would that unused depreciation reduce the amount of depreciation that was recaptured when the property is sold?

I'm glad I found this post, since I have a similar question about depreciation. In my case, the allowable depreciation is greater than the net income (after PITI and other expenses). I have used Turbo Tax for many years, but just want to make sure that it is doing what it should, and that I fully understand the implications of the depreciation allowance.

Take your example above, but after all expenses, the net income is $150/month, instead of $250/month.  Your depreciation can reduce your taxable income completely, and still have $100/month of unused depreciation left over.  In other words, $1200/year gets rolled over to the following tax year.  Line 21 on the Schedule E is a negative number.  I see that same number on Form 8582 line 1b, and the prior year's unused depreciation on line 1c.

Two questions:

1. When the net income for a given tax year does start to exceed the allowable depreciation in that tax year, then can one draw on the "banked" depreciation that was not used from prior years?

2. At the time of the sale of the property, the IRS expects the gain to be calculated with an adjusted basis that considers depreciation, whether in fact you used the depreciation or not, right?  So if you still have unused depreciation at the of the sale, does that unused depreciation increase your tax basis for the gain calculation?

I hope this makes sense.  I'm still a newbie at all of this, so please forgive me if I'm obviously off base here.

Hi Kevin, and welcome to the board!  I am also a Boglehead (powermega).  I am very much a newbie too, just trying to learn and gather information before I move forward from where I am in the real estate investing world.

I'm reading "The Book on Investing in Real Estate with No (and Low) Money Down", and getting a lot out of it.  You might start with that, since it will probably address your question about how to get started.  The part about "owner-occupied investment" might be relevant to you, since it is how I got started with my rental property.