Taxes - Closing Costs
Is everything I paid to purchase a rental property able to be depreciated? The irs site doesnt mention anything about appraisal fees or loan fees.
Also I have a cell phone that I use for personal use and for my rental properties, probably 50/50. Do I break this up and enter a partial expense on each property, 1 property, somewhere else (schedule c)? Thanks.
Go to the IRS website and download the Publication 527 on rental property. This will prove very helpful in doing your taxes. When computing depreciation make sure you exclude the value of the land since land is not depreciable. Is it fair to assume your rental properties will be held at least 1 year before disposition?
Thanks. Yes I am familiar with depreciated the property, seperating land etc.. My question was more focused towards some closing costs not listed on the irs website. Oh and my phone. I realize I can only deduct the portion used for business, I just dont know where to put it? [ Edited by billfaith on Date 02/05/2009 ]
Quote:
On 2009-02-05 10:13, billfaith wrote:
Is everything I paid to purchase a rental property able to be depreciated? The irs site doesnt mention anything about appraisal fees or loan fees.
Yes, it is, but indirectly..
All your closing and settlement costs, even the costs you might pay outside of closing such as appraisal and credit report fee can be added to the cost basis of your property. The IRS gives you the option of expensing some of these costs instead of adjusting your basis should you decide to do so,
Once you have an adjusted basis for your rental property, then you recover some of that cost annually through a depreciation expense.
Cell phone is tricky when it is not used exclusively for your business. I suspect you can take a portion of your monthly fee as a miscellaneous expense on Schedule E (line 18 ??), but you would have to itemize your calls. Figure out how many minutes you used the phone for business each month and how many for personal use. Multiply the percentage of business use by the cell phone bill to get your monthly business expense. Does not matter whether you take the entire cost against one property or share it among several.
For the amount that you would be allowed, many would find the call logging not worth the time and effort for the few pennies of tax benefit you might get.
Just how I see it.
Thanks. Great info. 1 last question. I formed an llc this year to hold the property. I had about $500 in costs for the formation of the llc. Now this llc has only rental income no active income. Can I deduct this expense somewhere? Would I show this as an expense on a schedule C and then no income for the business?
Why did you form the LLC? Is it a single member LLC which is treated as a disregarded entity for tax purposes?
If so, then the LLC does not exist as far as the IRS is concerned. Expense your incorporation costs as a legal expense on Schedule E.
If you elected to tax the LLC as a partnership or as a corporation, then your LLC will file a partnership or a corporation tax return. The start up costs will be a business expense on that tax return.
Consult your CPA for more specific guidance.
Legal expenses duh. It always makes sense when someone tells you! Thanks a ton!
As an afterthought, if you paid an annual membership fee to join your local investment club, that can be expensed on Schedule E as a professional fee.