The Basics of Rental Property Taxation
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- เผยแพร่เมื่อ 7 มิ.ย. 2024
- Explanation of the basics of rental property taxation. Discusses how rental income is taxed, what expenses are deductible, how to calculate and deduct depreciation, how to use Schedule E of your tax return and how rental property sales are taxed
Links in this video:
IRS Publication 527 - www.irs.gov/forms-pubs/about-...
Retirement Planning Insights - www.tenonfinancial.com/newsle...
Taxes in Retirement - / taxesinretirement
#RentalProperty #TaxPlanning #RetirementPlanning
DISCLAIMER: This video is only helpful hints and education. It is not specific tax, legal or investment advice. Before considering acting on anything you see in this video, first consult with your tax, legal or investment advisor. While the information expressed in this video is believed to be accurate, neither Andy Panko, CFP®, RICP®, EA nor Tenon Financial LLC make any guarantees to its accuracy.
Just perfect. Full of real information without all the useless babble. Thank you!
This is what I like, no bullshit motivation beat around the bush by more course type video, just straight information! I love it!
Facts!
This is the best explanation of depreciation recapture that I've ever seen!
Thank you!!!
Great information, im new to this and I'm a bit nervous of making mistakes on my taxes this year, I'll be adding our 1st rental to for this year.
Great videos, and easy to understand.
Really good informative video . Concise, crisp and clear . Thanks !
Thanks Bill!
Andy, Thank you so much for the video. The selling part of the video was really informative for me. Great channel.
Just the perfect tutorial video I’ve been looking for. Pls create more videos on rental properties or about business taxes. Thank you so much for all your help!
Thank you!
Nice, clear explanation!
Thank you for this! Answered a lot of my questions.
Great video, clear with perfect examples. Thank you!
Thank you!
Very good video. I needed some education for my rental property when I am filing my taxes. This is very helpful.
I'm glad you found it helpful, thanks!
Great video - clear and
to the point
Great intro Andy!
Andy, excellent video and to the point.
thank you!
very good vide, appreciate the clarity, so lucid.
amazing clarity !! thanks
This is awesome. Thank you for this information
Best detailed into explanation found!!!! Thanks!
Thank you!
Thank you! Very clear and concise.
Great information. Thanks so much!
As you mentioned, a lot of people think they can simply decline the depreciation deductions and not repay that on sale.
Excellent video! So to eliminate the capital gains, purchase more property and use 1031form to delay paying the inevitable taxes.
Great video, very straightforward.
Thanks!
Found you from the Kitces interview! Great video!
Thanks Chris!
Really awesome video!
Thanks!
Today I committed to gaining knowledge of real estate investing in order to confidently finance my first property. This video is an AMAZING start!! Thank you.
How your search for rentals going?
Great video! Thank you
Thank you for this! Great info 👍🏾
thank you!
Awesome explanation. Thank you!
Thanks!
Very well explained
Thanks a lot! very useful!
Awesome video, thank you! What do you suggest for reducing amount paid in taxes, while still showing income sufficient to continue getting approved for a traditional mortgage to purchase a new primary residence? Thanks!
Great stuff thanks
Appreciate the content. Very helpful.
Thank you!
Amazing video.
Thank you!! Rental property income tax for dummies 😍😍😍😍
The main thing i needed to know is that principle payment and HELOC interest is not something that counts in avoiding tax liability. I took a heloc for improvements and to move to a new home. This video helped so much to plan and withhold adequate part of rent to pay taxes
Great job, thank you
Great video!!
Thank you!
great information. mahalo!
Thanks for the informative video. How do you depreciate a manufactured home? Is it the same way? The home is located in a mobile home park. It is titled like a vehicle.
Very good vid
One of the more accurate videos out there.
One advice is, next time, zoom into the form a bit more.
Correct me if I'm wrong but the "depreciation recapture...taxed as ordinary income, up to 25%" - are you referring to the unrecaptured 1250 gain taxed at 25% followed by 1231 recapture taxed as ordinary income taxed at Taxpayer's ordinary income rate (can be as high as 37%).?
Yes, what I called "depreciation recapture" is technically "UNrecaptured 1250 gains."
Great presentation! Thank you!!! Where could I learn more on how to use IRA funds to lend myself for real estate investments?
I’m glad you liked it, thanks! I stay away from self-directed IRAs as the risks in disqualifying them are not insignificant, especially with real estate. So I don’t have any content on them. But if you Google “self directed IRA real estate” you’ll find an endless rabbit hole of info!
What if you move back into the rental as a primary home and sell it later? Do you still have to pay the depreciation tax if you are living in the home at time of sale?
Good afternoon. I have a rental property. I want to install solar panels. With the new code, can I claim the property as a “business “? Thank you.
The idea is to get the federal credit and all the benefits involved.
Thank you so much for sharing this information in a very clear fashion. I have a question relating to depreciation. Say, I make improvements this year but the property is not "Placed in Service" until January of next year. Although I won't be able to deduct depreciation expenses this year, will I be able to begin reporting such expenses beginning next year and on?
The depreciation expensing would start when you place the property in service. And at that point, your depreciable basis will include the cost of the improvements you made
Thanks
Hello sir, I have question on Rental property. I am renting out 3 room + Bathroom = 800 sq ft (i.e 25%) out of my primary house to the renter. It is rented for the whole last year 2021 for $9k. My property was brought in 2003 for $250k and 3200 sq ft Can you please explain with example on how to calculate depreciation. I understand per year depreciation (i.e 250k - land+closing /27.5 = $9090.00. Q: Is This depreciation is for the whole? and Q: How to calculate depreciation for renter part of it.
Hello, how do I report the sale of a house that was the primary residence for 6 years and then was turned into a rental for 19 years ? Specifically, how do I prorate the 6 years as primary residence for a gain zxclusion ? Thank you
I bought a property in October and getting it ready, painting etc in the current tax year. How do I carry forward these expenses to next year when I rent the place starting in February?
I purchased my property on 6/30 and did repairs and maintenance until 8/15… started fielding offers. What happens for those months where the property was technically serviceable?
3:58 closing costs are tax deductible on rental property. I’m using a VA loan to purchase a duplex, can i deduct half of closing costs since I’ll be using one half of duplex as primary residence but renting other half. Or is 100 % of closing costs tax deductible?
How about if we lived in that home for 2 years before turning it into a rental property? Does that mean we still need to pay the taxes (depreciation and all) when selling 10 years after renting it?
Nice work. what software are you using to creat and edit your videos?
Thanks! I have no video or film background but found I get decent enough results doing it all myself using the following: Filmora9 to do the actual editing. The full-screen slide overlays are done in PowerPoint where each slide is exported as its own standalone PNG file. And I also use Canva to do some of the images and graphics such as the intro and outro pages
Thank you for the great video. How would a 1031 exchange impact this scenario?
That essentially just defers the realization of gains and depreciation recapture by rolling it into the new property
very nice explanation. one question - how do we account for partial year.. if the rental got in service in april - do i prorate all the deductions such as mortage interest, property taxes etc or only the depreciation?
It all gets prorated
Great video. is the 27.5 years the life of a new property? What about you buy a used property?
It’s the same, doesn’t matter if it’s an old or new property: 27.5 years from when you put it “in service” as a rental.
So what happens if the ordinary income tax bracket you are in changes over time.....ie you buy the house while employed and then sell the house when you are retired (ie lower bracket). That depreciation recapture is then taxed at that lower bracket?
So what if you bought 3 rental properties, on payments and only 5000 goes toward principle every year and there is 15,000 in depreciation? Will that lower my regular job income -10,000?
This is amazing information, I have a question though what about if there is more land than dwelling? Example like a small ranch with a home
Thanks! Assuming the ranch isn't itself used as a business or to produce income separate from renting out the home, the overall process and accounting are the same. The main difference is presumably a larger portion of the total property value is going to be attributable to land as opposed to the building on it. Which means less of the total property value is depreciable (since land can't depreciate; only the homes/buildings on it can)
@@RetirementPlanningEducation thank you so much I viewed your videos literally half of my day yesterday and let me tell you that I have learned so much on my own life insurance. Thank you so much I am officially a follower and fan
Ha ha, thanks! You can tell the earlier videos I did were scripted and formal and I came off very robotic (as I tried to carefully focus on reading the teleprompter I had). Then I eventually started doing videos without the scripts (but also without the slides, overlays and charts) and those come off much more naturally. Hopefully you've been able to learn from both styles of videos@@mariachaires8063
@@RetirementPlanningEducation yes I did and the fact that you used all the tools necessary it's even better. Thank you again another quick question pooped up on my head, if a property that had two units, owner lived in front unit and rents the back unit. Bills paid are 50/50 on schedule E do full mortgage interest and full taxes get inputted on it? Or only 50% of it, does the other 50% go on schedule A?
Can anyone tell me if you have to charge pst and gst on a tenants rent? So if you were going to charge 1000 bucks rent. And had to charge 5% gst and 6% pst it would be 1110 you would have to charge... right? Or is charging sales tax not necessary on a rental property?
Hope you can respond: if you have a rental property under partnership LLC ( wiith 3 persons) do you use schedule E or form 1065??
Depends how you set up the LLC and whether your an active or passive participant in the business. It would be best to run this question by whichever tax professional does your tax returns.
Thanks for the video! So for example, if I purchased a home for $150,000 and I renovated a kitchen and spent $15,000, it would be added to the cost basis of the property? Does that then make the total cost basis $165,000 which can then be depreciated in the 27.5 years?
Yes, but the timing of things may not be that simple. For example, if you buy the property for $150,000 and don't actually put it "in service to be rented because you plan to immediate do the $15k kitchen remodel before renting it, yes, then the original basis when you placed the property "in service" would be $165k, which would depreciate over 27.5 years (though keep in mind that you can't depreciate the portion of the purchase that was attributable to the value of the land. You can only depreciate the part attributable to the building. But to keep the example simple, let's falsely assume the land was worth zero and therefore the full $150k + $15k = $165k is depreciable).
However, if you buy the house now, start renting it out now and don't do the kitchen remodel until three years down the road, you'd actually start depreciating the $150k now at 27.5 years. And then in three years when you spend the $15k on the kitchen, you'd separately start depreciating that at 27.5 years. Which means you'd have to different 27.5 year depreciation schedules running alongside one another, but starting at different dates.
@@RetirementPlanningEducation Thank you that is more or less the numbers I came up with.
Does the 27.5 yr depreciation start at the time the property was built or when you purchased it? Cause I bought a 60 yr old place....
It starts when you place the property in service as a rental. Which could be after you bought it.
Is there another video on a rental property that is also used personally ?
It's a longer watch and it may not answer everything you're looking to know (as the rules can get pretty complicated when it's a rental that you've also used for personal uses), but this video expands more on the topic: th-cam.com/video/dmMsluRv3Zg/w-d-xo.html
What if you only rented your home for 1-2 yrs and then lived in for years after. Would you still owe the “benefits” you receive when renting?
So don’t sell is the takeaway?
Thanks for the informative video. I have a question I own a single family home where I live and I can’t take depression but when I sell it, will IRS tax me on the depreciation anyway?
Thanks
Do you rent the house out, or it's only been your own personal residence?
@@RetirementPlanningEducation only personal residence
@@kshipon1798 then depreciation won’t come into play. You can’t deduct it as an expense, nor are you taxed on any depreciation recapture when you sell the place
should i use tax court method or irs method??? its not vaca home, i lived in it for 6 months of the year then rentd it out when i moved...which should i use
It would be best to run that question by whomever does your taxes, as I'm not sure which one would be better for you and your specific circumstances
Is it possible to get a refund at the end of the day?
Depreciation it is no cash but originally you bought the property so it deferral expenses instead of no cash expenses
Thank you for the video. Is property tax not deductible?
A rental property’s property tax is a deductible expense as it’s a cost of having the rental income.
@@RetirementPlanningEducation thank you!
Seems hash with improvements. I had a leaky bathtub that had rust and rundown floors in bathroom. I fixed those and spent $9000 which essentially is bathroom renovation as well. I don’t know why It shouldn’t be deductible!
Once I start taking a deduction for depreciation, do i have to take it every year?
Only if it is active
Quick question> Thanks in advance.. Let's say I loaned 200K to buy a rental property.. I get a monthly 1300 rental payment from it but I need to pay the loan 1000 per month.. So the yearly tax is only applicable to the year net of 2400? Any tips? Practicality wise?
If you're getting $1,300 per month of rental income, your gross annual revenue you have to report would be $15,600 ($1,300 * 12). But then against that revenue you can deduct related expenses, such as the interest portion (but not the principal repayment portion) of your mortgage payments, property tax you pay on the rental, any utilities you pay on the rental, any repairs you make on the rental, and you can also deduct depreciation of the rental property.
So then all said and done, it's the net amount of rental income on which you have to pay tax, where the net amount is $15,600 of gross revenue for the year, minus all of your relevant expenses for the year.
If I manage the property (24/7) can I claim it as a “business”? Thank you
I'm not exactly sure as it doesn't seem black and white. But this article has some good insight:
www.nolo.com/legal-encyclopedia/is-your-rental-activity-business-investment.html
The one question I had if you sell your house and you have to pay taxes on the gains. You can avoid those by buying another house or up to a certain amount $250k or $500k if your married. But is that only for primary houses not rentals ?
The $250,000 and $500,000 exclusions are only for primary residences, but you could still defer the tax by participating in the exchange you’re referring to.
@@thegamsta7133i
Is capital gain considered other income ???...great video
Sort of. If you're looking to be literal and call it as it's called on the 1040, no, it's not "Other Income." Other Income would be the net rental income you get while you own and rent out the place. But when you sell it, any capital gain you have on the sale would instead be shown under the "Capital Gain or (Loss)" line of the 1040
@@RetirementPlanningEducation so what type of account is it then ?. Like i have a transaction in quickbooks that i cannot seem to classify but I know is a capital gain.
@@jorgefraga5045 I'm not an expert in Quickbooks and I'm not sure how you have the property set up and reflected in Quickbooks in the first place. But you might find this link helpful:
quickbooks.intuit.com/learn-support/en-us/reports-and-accounting/tracking-capital-gains/00/247371
What is after 10 years, you gift the home to your children, instead of selling it? What happens with the taxes in that situation?
Like gifting any appreciated asset, your basis simply ports over to them. So they then own the asset and all of the unrealized gain and unrecaptured depreciation. If/when they sell, they will realize all of the gain and income on the sale
@@RetirementPlanningEducation great info, thank you, liked and subscribed!
isn't the recapture of depreciation eliminated if house is transferred at death as part of estate?
Yes, upon inheriting a property, the heir’s basis gets stepped up to date of death value (or the value six months later, if that’s what the executor or executrix decides is best)
Can 1031 transfer at sale avoid depreciation recapture?
It doesn’t get rid of it, I believe it just defers its. Like the capital gain on the first property; a 1031 does doesn’t make that gain disappear, it just punts it down the road by rolling it over to be dealt with when you eventually sell the second property.
So hiring a landscaper to mow the lawn or cut trees that are dead?
That would be a deductible maintenance expense
Points are not deductible. They can be amortized over the life of the loan.
Wait. I have a question. If I have 17k per year spent on mortgage interest on a rental property as an LLC, can I get back all of that 17k as tax credit. ? Or will it only get 30-35 percent back as tax deduction ?
Depends how you're reporting the rental property; active vs passive. If it's a passive rental, the interest expense will reduce the amount of taxability of the rental income you have. And if you have a net loss on the property for the year, you may or may not be able to deduct that loss against the rest of your other income (depends how high your total income is). And if you can't deduct the rental property's net loss in the year, the loss will carry over to future years to offset future year's rental income
@@RetirementPlanningEducation ok thanks a lot. yes, it will be passive. so, overall, if the interest rate on the mortgage is 7 percent, and if we earn more than 300K per year as a household, it just reduces our taxable income by 17K. and we get back around 30% of that 17K as refund. so, its probably more cost-effective to pay off mortgage quicker and save money upfront.
Do you still pay back all depreciation if you 1031?
I believe that gets deferred as well
@@RetirementPlanningEducation Great! I love 1031's!
Hey man you should 1031 exchange this deal. Why play checkers when you can play chess !?!??
What about interest on a HELOC loan used to purchase and rehab a property?