Your Life

Your Life

Major life milestones often have a major tax impact. Changes in your marital status, having a baby or adopting a child can have significant impact on your taxes. This is the place to ask questions about dependents, real estate, and other various scenarios that play a significant role in what taxes you pay.

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Pioneer
Posts: 2
Registered: ‎02-04-2018

Rental property = business?

We purchased a furnished property this year that we rent out weekly over the summer using a rental property manager.  We purchased indicating it is an investment property, but did not buy under an LLC or take any actions to incorporate.  We rented 60 days and have kept pretty good records of expenses.  Lastly, we received a 1099-MISC regarding our rental income.  A few questions:

1) Can we consider this a business allowing us to deduct business expenses?

2) If so, would we indicate the Principal business code as "531100 - Lessors or real estate"?  If not, what should we put?

3) Can I use the cash accounting method since I don't sell merchandise?

4) How do I determine the cost basis for furniture, appliances, etc. that came with the house for depreciation purposes?  Same question for items in my supporting home office that I bought several years ago (ex. desk, chair, computer)

5) Please explain the question "Is rent amount for this rentals and royalties worksheet?"

6) Do we need to consider the following as personal use: we had the house blocked from being rented but were not using it (i.e. it was empty)?

7) I have records for mileage I spent for business related activities, but I did not capture mileage at the start of the year.  I see it is looking for total miles driven vs business miles.  How do I prove total miles driven?

 

Thanks!

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Esteemed Neighbor
Posts: 222
Registered: ‎02-28-2016

Re: Rental property = business?

Rental property income, expenses and depreciation is reported on Schedule E. You can probably find many answers in this IRS Publication #527.

https://www.irs.gov/publications/p527

Pioneer
Posts: 2
Registered: ‎02-04-2018

Re: Rental property = business?

I reviewed IRS Publication #527 and it helped a lot.  Thank you.

 

I do still have a few questions:

1) If my second home is a rental home partially for business and partially for personal use, will I get flagged for an audit if my 1098 mortgage interest statement is split between Schedule C and the mortgage interest deduction section?  Same question for splitting my mortgage interest on my primary home for deducting a portion for my home office as a business expense?

2) Is there a science to coming up with a cost basis for business assets?  For example, if the rental home came furnished with a kitchen table, can I find a comparable new kitchen table and reasonably assess some value less than the cost of the new table because it is no longer new?

3) The property is 2.5 hours away from my home and when I travel there it crosses over a meal time.  Do I need to have receipts for inexpensive meals (ex. less than $15)?

Esteemed Neighbor
Posts: 222
Registered: ‎02-28-2016

Re: Rental property = business?

1) If my second home is a rental home partially for business and partially for personal use, will I get flagged for an audit if my 1098 mortgage interest statement is split between Schedule C and the mortgage interest deduction section? Same question for splitting my mortgage interest on my primary home for deducting a portion for my home office as a business expense?

 

Lots of taxpayers do this so I wouldn't think it's a big red flag. I cannot offer any guidance with regard to IRS audit potential. Keep good records and follow the rules. If the IRS asks for more info it shouldn't be a problem for you.

 

 

2) Is there a science to coming up with a cost basis for business assets? For example, if the rental home came furnished with a kitchen table, can I find a comparable new kitchen table and reasonably assess some value less than the cost of the new table because it is no longer new?

 

I'm not sure.Personally, I would not be inclined to give much value to used furnishings, especially for depreciation purposes. My reasoning is that when you sell, you must recapture the amount depreciation. Depending of your other income, the rate can be as high as 25%. Since you purchased the furnishings with the property, I wouldn't even deal with them as assets.

 

3) The property is 2.5 hours away from my home and when I travel there it crosses over a meal time. Do I need to have receipts for inexpensive meals (ex. less than $15)?

 

You need a receipt for everything you list as an expense.