Annette Hall, CPA: Q&A 5

Are there any tax liabilities of owning rental property?

The taxable gain on the sale of the property and the loss limitation are the primary concerns.

Annette Hall, CPA
515 Keisler Drive
Cary, NC 27518
919-468-0505

Annette Hall, CPA: Q&A 4

Is it better to have my rental property owned by an individual/couple , LLC or Corporation?

The tax implications of the entity selection would depend on the tax rate of the owner and passive activity holdings. The legal implications of the entity selection are more important for liability protection.

Annette Hall, CPA
515 Keisler Drive
Cary, NC 27518
919-468-0505

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Annette Hall, CPA: Q&A 3

I receive a monthly statement from property manager. Is the monthly operating statement sufficient proof of my expenses or does the IRS require copies of every bill paid?

The IRS requires documentation from a 3rd party source to substantiate any rental and or business deductions. The documentation should show the date, amount paid, who it was paid to and that the purpose was business/rental related. If the property manager identifies this information on the monthly statement and the payment is made directly to the property manager then that should be sufficient.

Annette Hall, CPA
515 Keisler Drive
Cary, NC 27518
919-468-0505

Annette Hall, CPA: Q&A 2

I plan on moving into the property when the tenants move out. Can I write off the cost of the carpet, paint, etc. if the repairs are for me?

The rental property should be maintained to the original condition. Any repair costs to return the property to original condition would be deductible expenses for the rental. Any costs to improve the property beyond the original condition would not be deductible.

Annette Hall, CPA
515 Keisler Drive
Cary, NC 27518
919-468-0505

Annette Hall, CPA: Q&A

If I plan to sell my house within the next 3-5 years (and I have lived in the home at least 2 of the years), can I depreciate the home and NOT pay capital gains?

Individual homeowners can exclude up to $250,000 of gain on the sale of their principal residence if they meet the 2 year ownership and use requirements. The exclusion is $500,000 for married couples. The exclusion can only be once in a 2 year period.

If the residence has been converted to a rental property this exclusion no longer applies. Depreciation is a required expense for rental property. The gain realized on the sale of the rental property will be split between recaptured depreciation subject to a maximum tax rate of 25% and regular capital gain for the remaining amount.

Annette Hall, CPA
515 Keisler Drive
Cary, NC 27518
919-468-0505