DonaldFDraper said:
South Platte said:
DonaldFDraper said:
Top Level Info:
- Loss of ~4,400 (paid 2018 property taxes in 2019) (your mortgage company should provide you with a tax document showing what property taxes were paid for calendar year 2019).
- I do not have an escrow account so it is not listed. I made the Tax Year 2018 payment in Jan 2019 then Tax Year 2019 payment in Dec 2019. Thinking through it - Would the Jan 2019 payment count if it was not yet placed in service?
General Questions:
- Qualified Joint Venture: I set up the business under me only. I owned the home before we were married so everything is in my name and am the more "active" participant in operating the rental property. Is there any benefit to setting up the rental as a "Qualified Joint Venture" between my wife and I vs. solely under me? (Did you actually create a business for your rental property business? I think it's highly unlikely that you would qualify for a QJV. See link here: https://www.irs.gov/businesses/small-businesses-self-employed/election-for-married-couples-unincorporated-businesses#:~:text=A%20qualified%20joint%20venture%20is,be%20treated%20as%20a%20partnership.
- I did not create a separate business entity. It will be listed on my/our personal return. Here is the description from TaxAct when prompting the question:
If you and your spouse each materially participate as the only members of a jointly owned and operated rental real estate business and you file a joint return, you can make an election to be taxed as a qualified joint venture instead of a partnership. If you wish to make this election, you will need to complete a separate Schedule E for each spouse to report their respective portion of income, deduction, or loss. Select the spouse whose income, deduction, or loss will be reported on this Schedule E.
You will need to complete a separate Schedule E for the other spouse's portion of income, deduction, or loss.
By making this election, you will not be required to file Form 1065 for any year the election is in effect and will instead report the income and deductions directly on your joint return. Once made, this election can be revoked only with the permission of the IRS.
- Qualified Business Income Deduction / Adjustment: Answering the TaxAct prompts yielded $0 for 2019. Is that to be expected given my situation? (Did you set up a separate entity for this property?)
- I did not create a separate business entity. It will be listed on my/our personal return.
Depreciation Questions:
- Cost Basis: There have not been any material improvements since purchasing. My understanding is to take purchase price in 2011 * % of the house/improvement value from my current tax assessment? (Good question. Where my property is located, the original purchase was broken down between building and land. Since land doesn't depreciate, I can only depreciate the original building amount. I think I agree with you - if your current tax assessment says the building is 75% of the total market value, then take 75% x original purchase price).
- I can only see Assessed Values on the Tax website back to 2015. I emailed them requesting 2011. I found 2010 in my closing documents:
Which puts the land value around 22.5% so I could use that ratio x Purchase Price.
First of all - THANK YOU!!!
I edited the quote above to only include where I responded.
One additional "macro" question about Cost Basis - If this is a long term rental (10+ years), is it better to have a larger or smaller cost basis?
I appreciate your help.
No problem. My mind wanders during the pandemic and sometimes it's more fun to hang out on Texags than crank out spreadsheets.
I've always had an escrow so I'm not sure how the 2018/2019 thing works. My assumption would be that the timing of the payments is irrelevant and you can only deduct property tax payments related to that calendar year. So no, 2018 taxes paid in 2019 would not be deductible on your 2019 tax return.
It sounds like the QJV and Qualified Business Income do not apply to you . . . more thoughts on this below . . .
Cost Basis - I think your 22.5% breakdown makes sense and is a conservative approach to the issue. I don't know that your larger/smaller question applies since determining the cost basis isn't supposed to be subjective. I think you need to choose a defendable approach (which you have) and stick with it. Macro, you want to show as little profit as possible, so a larger cost basis is better.
Take this for what it's worth . . . given that you and wife make good money, I would encourage you to be selective with your rental properties. Don't hold on to a rental property for sentimental value (e.g., you used to live there). Hold on to it because it makes sense from a monthly rental income standpoint, property value increase, etc. The fact that you lost $4,000 on a $1XX,XXX property means that your monthly rental income is low and needs to be increased. If the market doesn't allow for that, you should look at selling the property and find one that can generate a better monthly rental income.
Figure out what type of rental property investor you want to be. Maybe it's a guru of $100,000 to $150,000 houses because you know how to personally fix a bunch of stuff in a middle to lower middle class home. You might be dealing with a lower socio-economic person which comes with a rash of issues (late payments, drugs, destroying the place).
Single family detached housing property value returns are typically better than condos. I think you will be able to afford to get into several properties over the next 10 years. I can only afford to own 1 condo, although it rents and has appreciated really well. I encourage you to evaluate all the options and figure out the most profitable strategy. There is a Real Estate board with a few rental property studs that could assist.
