All Forum Posts by: Jake Hottenrott

yep, that's definitely a deduction assuming you mean insurance that covers your rentals and not your primary residence.

@Phil DeSimone - In my professional judgement you meet the requirements to qualify for the maximum exclusion ($250,000) based upon the situation as presented.  (That's about as definitive as a CPA is going to get on a public message board.) 

@Natalie Kolodij - thanks for the mention and making my head hurt doing some quick research on this during the filing deadline.

@Phil DeSimone - You meet the ownership test.  I would also mark you as meeting the use test as you have a seasonal absence (hockey season) in which you rent out the property which is still counted as a period of use.  

To claim the exclusion, you must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, you must have:

• Owned the home for at least 2 years (the ownership test), and
• Lived in the home as your main home for at least 2 years (the use test).

Exception. If you owned and lived in the property as your main home for less than 2 years, you can still claim an exclusion in some cases. However, the maximum amount you may be able to exclude will be reduced. See , later.

Example 1—home owned and occupied for at least 2 years.

Mya bought and moved into her main home in September 2014. She sold the home at a gain in October 2016. During the 5-year period ending on the date of sale in October 2016, she owned and lived in the home for more than 2 years. She meets the ownership and use tests.

Example 2—ownership test met but use test not met.

Ayden bought a home, lived in it for 6 months, moved out, and never occupied the home again. He later sold the home for a gain. He owned the home during the entire 5-year period ending on the date of sale. He meets the ownership test but not the use test. He cannot exclude any part of his gain on the sale unless he qualified for a reduced maximum exclusion (explained later).

The required 2 years of ownership and use during the 5-year period ending on the date of the sale do not have to be continuous nor do they both have to occur at the same time.

You meet the tests if you can show that you owned and lived in the property as your main home for either 24 full months or 730 days (365 × 2) during the 5-year period ending on the date of sale.

Temporary absence. Short temporary absences for vacations or other seasonal absences, even if you rent out the property during the absences, are counted as periods of use. The following examples assume that the reduced maximum exclusion (discussed later) doesn’t apply to the sales.

https://www.irs.gov/publications/p17/ch15.html#en_US_2016_publink1000172459

@Rachan M. here's a quick post I wrote on this exact topic.  https://www.biggerpockets.com/blogs/5926/53215-questions-as-common-as-the-cold---llc

@Valerie King - I wrote an article a while back that covers a few things you can do to be prepared for your CPA.  Check it out here https://www.biggerpockets.com/blogs/5926/41179-as-a-real-estate-investor-what-can-you-do-to-be-prepared-for-your-cpa

@Jean-Marie Poth - Do you fix your own car or take it to a mechanic?  Do you write your own contracts or have a lawyer prepare them?  Do you use Web MD as your end all be all when you have a health issue or do you go and see a doctor?  It's just my two cents worth (and I'm biased as a CPA) but let a professional do their job and you should see a result over time that makes their cost well worth it.

@Account Closed - Remember, speed does not equal the best result.  

Thanks and I hope that helps!!  Best of luck!

@Pratik P. - You don't necessarily need to find someone in Sacramento but find someone who is excellent at communication and who knows real estate here's a blog post.  Blog Post 1  

Additionally, a good CPA will want to make sure you are planned for the coming year and prepared for tax season.  Here are some things you can do to be ready for your CPA Blog Post 2

Look around the boards and forums, there are plenty of fantastic CPAs right here in the community who are active investors and niche real estate CPAs.   

@Hector Perez - It sounds like you need another new accountant.  The old CPA is right as long as he is using a standard amortization table to break out interest and principal and not just doing a straight $40,000/25 years for gain on top of the basis.  You might want to read this IRS Pub 537 and share it with your current CPA.  

Prior to closing, you will get a HUD statement that details the costs and breakdown of various payments including who is paying for the taxes. Depending on your area and when taxes are due you should get a credit for the prior years taxes.

For example, in Illinois, our real estate taxes are due mid year.  If I closed on a house I was buying in January, I would expect a prorated portion of the real estate taxes for the prior year and the date of January to be credited to me at closing.  Since the property will then be in my name (or my company's) when the tax bill comes out, I will be responsible for paying the taxes.  For properties in Missouri, the real estate taxes are due on the 31st of December for that year.  So in the same situation, I would expect a prorated portion of the real estate taxes to be credited to me from January 1 of the current year to the date of closing.  

Hopefully that quickly explains it!

Sorry, I hit enter before I realized it.  No they are not deductible and are added to the basis. It also depends o the amount of start up costs you are incurring to get this property ready To rent.  Do you have other properties? You will want to keep the properties classified separately as you are able to deduct expenses incurred for a rental that won't be available to be deducted as a second home.