Rental Deduction info needed...

garden_graphic_galFebruary 26, 2010

I am still alittle confused about the $5000.00 allowed "start up deductions". Maybe someone here has the answers:

This will be the first home that I will rent out. I just bought it as an REO and am waiting for escrow to close.

I know that paint and basic repairs fall under this section BUT If I want to replace some carpet, replace stove and some light fixtures that are broken these do not seem to fall under the "start up" deductions (or am I wrong).

I have heard that you must advertise that the home is available in order for these things to be deemed "operating expenses". But how do you advertise that the home is available for rent, thus allowing you to take improvement depreciation, if it is not truely move-in ready? I'm confused. I can also afford to have the home vacant but I would like to get the best tax break available also. How do you plan to work through this? Thanks for any info.

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Well--this is Feb. 2010. If you are acguiring the house now and working on it all summer to prepare it for rental, you will have till April 15, 2011 to file and take all the deductions possible. You should have it rented out by then.

This is the first time I've heard of startup costs. We've always deducted any costs associated with a business or a rental, including mileage to pickup materials.

    Bookmark   February 26, 2010 at 2:35PM
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I've never heard of this either. I use TurnoTax Premier (the one for rental properties), and don't remember having to have special deductions for things like this.

    Bookmark   February 26, 2010 at 10:44PM
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I too am a landlord and I echo the others. I don't have a clue what you are talking about.

    Bookmark   February 28, 2010 at 12:15AM
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I have read this in several NOLO books. Remember that this is my first rental property and it needs some work done to it to be considered available to rent. Here is some of what they say...
"You can deduct up to $5000 of your start-up expenses the first year that you're in business. Start up expenses are any expense you incur before offering your property for rent, so long as they're related to getting your business up and running. Once the property is posted as available to rent, then all your expenses are cosidered operating expenses. Start-up expenses can include "repairs to get the property ready to rent,office supplies,
advertising and educational how-to books, etc."

"A special tax rule allows you to deduct up to $5000 in start up expenses the first year you are in business, and then deduct the remainder, if any,in equal amounts over the next 15 years. The date you offer your first property for rent is considered the date your business starts.".. NOLO Evert Landlords Tax Deduction Guide .

    Bookmark   February 28, 2010 at 5:23AM
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In many places renting property is not, by itself, a business.

Do you need a business license?

Tread carefully.

Most of the expenses are already deductible, so what expenses would qualify as a "business expense" that would not be deductible anyway?

    Bookmark   February 28, 2010 at 11:07AM
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You should check with your CPA tax person who specilizes in rentals or businesses.

    Bookmark   February 28, 2010 at 5:48PM
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OK, forget about the business and/or start-up expenses.... you are saying that if I buy a home today and take a few months to repair and improve it to a point that it is rentable, I can take all available deductions for repairs and depreciations for improvements from the day I purchase it, as long as it gets rented by the end of the year? I do not have to wait until I advertise the home for rent to be able to take these deductions?

    Bookmark   February 28, 2010 at 9:14PM
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You should read IRS publication 527 (link below) and see your tax accountant, if taxes are material to your purchase and what you spend to make the property rentable. There is a difference in tax treatment between maintenance and investment expenditures. It would be wise to understand the whole subject better at the outset so you can make good decisions and keep and retain proper records to back up your tax returns.

Here is a link that might be useful: Publication 527, Residential Rental Property

    Bookmark   February 28, 2010 at 10:23PM
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As long as your intent is to rent the place you can take all the deductions. When you do rent it it shows that your intentions are serious.

    Bookmark   February 28, 2010 at 11:17PM
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Manyhosta~Thank you so much for this link. I have the 4562 form but this publication is very helpful. Thanks.

hendricus~Thank you. I was getting confused with what I had read about "business rental start up" but since it is only one property and I do not need a business license,that makes perfect sense to me.

    Bookmark   March 1, 2010 at 11:22AM
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mariend~will do, thanks.

brickeyee~Thanks. Everyone has been very helpful.

    Bookmark   March 1, 2010 at 12:13PM
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