Rental Property Worksheet

ExactCPA
14 South Pierson Road Maplewood, NJ 07040

info@exactcpa.com Phone: (973) 996-2284 Fax: (646) 929-5562 www.exactcpa.com

Please use the guide below to assist us in gathering information related to your rental properties. Please feel free to use additional pages if you have more than one property. If you need assistance with this form or have any questions, please do not hesitate to email or call us. We look forward to serving you! Property Address_________________________________________________________________ Date Property was Placed into Service__________________________________________________ Purchase Price or Fair Market Value__________________________________________________ Portion of Price / Value Attributed to Land ________________________ Rents Received__________________________________________________________________ Advertising_____________________________________________________________________ Cleaning, Maintenance___________________________________________________________ Commissions___________________________________________________________________ Hazard Insurance________________________________________________________________ Legal, Professional Fees__________________________________________________________ Management Fees______________________________________________________________ Mortgage Interest_______________________________________________________________ PMI__________________________________________________________________________ Other Interest __________________________________________________________________ Repairs________________________________________________________________________ Supplies_______________________________________________________________________ Property Taxes_________________________________________________________________ Utilities_______________________________________________________________________ HOA Dues_____________________________________________________________________ Cell Phone Expense______________________________________________________________ Internet Expense________________________________________________________________ Rental Worksheet / ExactCPA 14 South Pierson Road, Maplewood, NJ 07040 973.996.2284 exactCPA.com info@exactcpa.com

Rental Property Worksheet

ExactCPA
14 South Pierson Road Maplewood, NJ 07040

info@exactcpa.com Phone: (973) 996-2284 Fax: (646) 929-5562 www.exactcpa.com

Other_________________________________________________________________________ Other_________________________________________________________________________ Did you sell or dispose of this property last year? Did you use the property for personal use last year? Is your rental considered a vacation rental? YES YES YES NO NO NO NO

Did you use a vehicle to manage this property?

YES

If yes, please complete Vehicle Expense Worksheet Did you use a home office to manage the property? If yes, please complete Home Office Worksheet Do you share ownership with anyone else besides your spouse? YES NO YES NO

Do you rent a portion or unit of a multiple unit dwelling that you also reside in? If so, please explain below: _________________________________________________________________________ __________________________________________________________________________________ Disclosure I(We) verify that the information provided in this Rental Property Worksheet is accurate and complete. I(We) understand it is my(our) responsibility to include any and all information concerning income, deductions and other information necessary for the preparation of my (our) personal income tax return. Taxpayer Signature_______________________________________________ Date______________ Printed Name___________________________________________________ Spouse Signature________________________________________________ Date_______________ Printed Name____________________________________________________

Rental Property Worksheet

ExactCPA
14 South Pierson Road Maplewood, NJ 07040

info@exactcpa.com Phone: (973) 996-2284 Fax: (646) 929-5562 www.exactcpa.com

Rentals Frequently Asked Questions Does owning a rental property offer any significant tax benefits? Owning a rental property can have significant tax benefits. Like other business ventures, owners are able to deduct the expenses related to their rental endeavor. There are two main issues surrounding the ownership of rental property: passive loss limitations and future income tax rates. The passive loss limitation rules can limit the deductibility of expenses related to rental properties and should be explored more carefully. What is the impact of the passive loss limitations rule? Rental income is typically considered passive, meaning that you are not directly earning the income as you would with a job. Passive losses may be deducted from non-passive income such as wages, but there are limits. Passive loss limits max out at $25,000, and that number decreases as your gross income increases. Specifically, passive loss reduces $1 for every $2 over $100,000 adjusted gross income, and by $150,000 (for married couples) the passive loss deduction is $0. If your rental losses are capped or disallowed because of passive loss limits, that portion exceeding the passive loss limit is carried forward, aggregated and may be deducted in the year of disposal (sale). What if I spend a significant portion of my time as a real estate professional? If you are a real estate professional (materially participate more than 50% of your time and 750 hours per year managing each rental activity), you can claim 100% of your losses and you are not capped by passive loss limits. If you hire a management company you are almost guaranteed to NOT be considered a real estate professional. Please see, What is active participation versus material participation? below, and how it affects your passive loss. Is depreciating my rental property beneficial to me for tax purposes? Yes, but there are some issues. As mentioned in a previous frequently asked question, a large chunk of your rental losses can be due to depreciation. Generally speaking, a rental property is depreciated over 27.5 years, and only that portion attributed to the dwelling itself and not the land is depreciated. However, depreciation must be recaptured when you sell the asset the rental property. Your cost basis is essentially reduced by the amount of accumulated depreciation, increasing your subsequent gain on sale. Since you deducted depreciation as an expense every year during ownership, you cannot deduct the original cost from your sale price to reach your taxable gain on sale. You cannot receive the benefit of the same deduction twice (once during the useful asset of the property and the second during the sale) Gains on recaptured depreciation is taxed at your ordinary tax rate up to 25% (Section 1250 gain), while the remaining gains are taxed at your capital gains rate

Rental Property Worksheet

info@exactcpa.com Phone: (973) 996-2284 Fax: (646) 929-5562 www.exactcpa.com Exception: if you can demonstrate that a portion of the gain beyond the capital gain is attributed to an increased value of land, you can reduce the amount of recapture gain. Since you cannot depreciate land, this exception is born out of the same premise. Often times the location of a property (i.e., land) is a large portion of its appreciation in value. The other portion can be attributed to increased costs of building materials and labor. 14 South Pierson Road Maplewood, NJ 07040 Please feel free to contact us to assist in determining your situation. Generally speaking, taking the maximum allowable depreciation is going to be our advice to the majority of rental property owners. What is active participation versus material participation? The difference is more critical for businesses, especially partnerships. For rental properties, the issue is nearly moot. However, to avoid the passive loss limitations of $25,000, a taxpayer must be considered a real estate professional who also materially participates in the rental activity. Active Participation: To be considered actively participating, you must make significant and bona fide managerial decisions on such things as new tenant approval, rental terms, repairs, capital expenditures, etc. Even if you use a management company, you will be considered active if you are involved with the operation of your rental. There is not an hourly assessment nor do you need to maintain a regular schedule of involvement. If you are actively participate, you may deduct up to $25,000 of your losses subject to income limitation (see How do passive limitations affect me? above). The rules for material participation are considerably more stringent, but rental activities are automatically considered passive even if you materially participate. The only exception is if you consider yourself a real estate professional. Real Estate Professional: First, more than half of the personal services performed in all businesses during the year must be performed in real estate businesses. If you have another full-time job in which you work 40 hours a week, you will need to work more than 40 hours per week in your real estate business. That can truly be a hard sell to the IRS. Second, you must materially participate in the rental activities, and your hours worked in the rental activity must be more than 750 hours. Any work performed as an investor cannot be counted. If you own multiple rental properties each will be considered a separate entity and you must satisfy the above requirements on each property independently unless an election is made to treat all those interests as a single activity. These tests are applied annually. So, a rental property owner may qualify as a real estate professional in some years but not in others. Wait! Theres more. Once you qualify as a real estate professional, you must materially participate in the operation of your business (rental properties). Material Participation: Material participation in an activity means involvement in the operations of the activity on a regular, continuous, and substantial basis. There are several requirements, and satisfaction of any one requirement will allow you to be considered materially participating. The first requirement is that you participate in the activity for more than 500 hours in the tax year. Well, if you already spend 750 hours to satisfy the real estate professional label then you automatically pass the material participation

ExactCPA

Rental Property Worksheet

info@exactcpa.com Phone: (973) 996-2284 Fax: (646) 929-5562 www.exactcpa.com test. However, there might be situations such as partnerships that might complicate the material participation test. 14 South Pierson Road Maplewood, NJ 07040 What happens if I move back into my rental? In some cases it can prove to be beneficial. If your rental property has increased in value over the years, gains on recaptured depreciation is taxed at your ordinary tax rate up to 25% (Section 1250 gain), while the remaining gains are taxed at your capital gains rate. But, if you live in the property as your personal residence for two out of the last five years, you can use the $250,000 exemption (or $500,000 if you are married and filing jointly) to exempt the property from the capital gains tax as outlined in IRC Section 121. And you dont necessarily have to live in the property for two years in a row, 24 months is a cumulative number. You will still have to pay the taxes on the depreciation recapture at the Section 1250 gain rate (up to 25%), but this is significantly better than paying the capital gains tax in addition. Do I need to retain my receipts related to my rental expenses? You will need to be able to demonstrate proof of payment for any single transaction over $75 you need to demonstrate that you paid for the expense. Canceled checks or credit card statements are considered satisfactory. If you pay with cash, you must maintain a record of each transaction (a dated receipt with a company name or signature is your best bet). Second, the record or receipt must show the amount, date, place and essential character of the expense. Please understand that regardless of the $75 rule the IRS will still require substantiation of the expense. Therefore, our advice, and the advice of other tax accountants, is to keep all receipts over $10. To clarify, we will not need copies of your records or receipts. This is only in the event your tax return is examined by the IRS. Our advice to small business or rental property owners is to use a separate credit card for expenses associated with your job. We understand that using separate credit cards might create some hassles, but ensuring that all your job related expenses are properly documented and more importantly deducted on your tax returns should outweigh the inconvenience. There are several expenses that are associated with your rental property that you are allowed to deduct. There are obvious ones such as advertising costs, mortgage interest, utilities, depreciation, etc. But there are also ones that are more obscure. Vehicle expenses and home office deductions are often overlooked. The IRS uses two rules for determining if an expense is deductible. In general, you may deduct ordinary and necessary expenses for conducting a trade or business. An ordinary expense is an expense that is common and accepted in the rental business. A necessary expense is one that is appropriate for rentals. If you use a dedicated room in your home to manage your rental property you can deduct that as well. Other expenses such as cell phones and internet access are also fringe expenses that most taxpayers miss.

ExactCPA

Rental Property Worksheet

ExactCPA
14 South Pierson Road Maplewood, NJ 07040

info@exactcpa.com Phone: (973) 996-2284 Fax: (646) 929-5562 www.exactcpa.com

What is eh difference between rental repairs and rental improvements? Repairs are expensed and deducted in the current tax year, whereas improvements are capitalized and depreciated over time. Most rental property owners want to expense as much as they can to gain the immediate tax benefit. In Publication 527 the IRS defines improvements as something that adds to the value of property, prolongs its useful life, or adapts it to new uses. Some examples from the publication include wall to wall carpet, new roof, additions, kitchen updates, etc. Improvements have a tendency (but no always) to be more permanent in nature. There is one caveat that you should be aware of, in the same list of examples, the IRS is quick to point out that work you do or have done to your rental property that does not add much to either the value or the life of the property, but rather keeps the property in good condition is considered a repair and not an improvement. A common example is paint, even if you completely paint the interior and exterior. HOA dues can also be problematic since some HOAs cover the costs of roofs and other items that are typically depreciated and not expensed. This is especially true for condominiums or cooperatives. We typically will expense HOA dues unless an itemization of some sort is provided. What closing costs can I deduct in the year I purchase my rental property? Generally, only mortgage interest and qualifying real estate taxes may be deducted. Points associated with the value of the property are amortized and deducted over the life of the loan. Everything else such as legal fees, recording fees, surveys, title insurance, transfer taxes, etc. become additions to your cost basis, and are depreciated along with the value of the property excluding land. The costs of borrowing do not add to your cost basis since the IRS only allows additions to the cost basis as if you paid cash.

Please feel free to contact us via phone or email with any questions that you might have. We look forward to serving you!