The Basics of Rental Property Taxation 

Facts!

Thank you!!!

Thank you!

How your search for rentals going?

Thanks Bill!

I'm glad you found it helpful, thanks!

Thanks!

thank you!

Thank you!

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

Yes, what I called "depreciation recapture" is technically "UNrecaptured 1250 gains."

Thanks Chris!

Thanks!

thank you!

Thank you!

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.

Thanks!

Thank you!

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!

When used as a primary residence, there is no depreciation to deduct or expense. So there is no concept of getting any special tax treatment on depreciation when you sell

Yes. The depreciation does remain until you sell it, so it does remain a factor. But if it is your primary home for at least 2 years during the 5 years before you sell it, you can qualify to offset up to $250k if you're single ($500k if married) of your capital gains under tax code section 121, but it would also be reduced somewhat by the "nonqualified use" of the time it was a rental. I won't go into all the complexities here. And that section 121 exclusion can't offset the depreciation recapture.

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!

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

That would be a deductible maintenance expense

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?

It starts when you place the property in service as a rental. Which could be after you bought it.

If you hold the property until you die and then pass it on to heirs when you leave this world, they will get a "step up in basis" such that all of the unrealized gain and unrecaptured depreciation disappears and your heirs acquire the property as if they paid for it whatever the property was worth when you died

Thank you!

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

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.

That essentially just defers the realization of gains and depreciation recapture by rolling it into the new property

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: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-dmMsluRv3Zg.html

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 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

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.

Yes, there is currently a 30% tax credit under section 48 that rental properties can qualify for.

It all gets prorated

It is yes, and that can be a useful strategy.

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)

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 US income tax code is the Internal Revenue Code, which is Title 26 of the United States Code, which is the country’s main collection of governing laws

It’s complicated, but possibly. If you use it as a rental property and it wasn’t already fully depreciated by the person who gave it to you, yes.

@@RetirementPlanningEducation I will probably just skip it then . Another question please, how about handymen that I hire and give me a receipt but I don’t give them a 1099 can I still deduct the work on my income taxes? Thanks for your time Sir!

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.

Yes, half of certain closing costs can be added to the basis that you depreciate as part of the cost of the rental (so that gets you a deduction each year, over a period of time). Costs related to the mortgage are "amortized", which is similar to depreciation but there are some differences.

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! 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

Yes. There is a special exception to exclude some of the capital gains from selling it only if you lived in it at least 2 of the last 5 years preceding the date you sell it.

A rental property’s property tax is a deductible expense as it’s a cost of having the rental income.

@@RetirementPlanningEducation thank you!

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

Only if it is active

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

I believe that gets deferred as well

@@RetirementPlanningEducation Great! I love 1031's!