SCHEDULE E RENTALS 437 Laverne ● Clovis, CA Ofc: (559) ● Fax: (559)

RS Accounting Inc Roxie French, EA ● 30 years of profit & loss experience ● Over 20 years experience: Tax Preparation (residential & small businesses), IRS audits, Accounting and Payroll ● Experience in: Retail Sales, Fast Food, Real Estate, Medical, Dental, Construction, Service, Plumbing, Air Conditioning, Personal Bookkeeping Sandra Borchardt, CPA ● 17 years at a Big 6 Accounting Firm ● 8 years as a Top 20 Corporation Executive ● Focus areas: Financial, Accounting, Taxes and Payroll. Industry experience in: Medical, Architects, Construction, Real Estate, Property Management Companies and other small businesses 2

SCHEDULE E - RENTALS 3

RENTAL INCOME Includes and payment received for the use or occupancy of property:  Advance rent  Payment for canceling a lease  Expenses paid by tenant  Property or services in lieu of rent  Security Deposit (unless plan to return it at end of lease) Example: First, last and security deposit 4

DEPRECIATION – Land vs Structure  Need to separate at purchase  Only depreciate structure  Basis=  Purchase price (attributable to structure) – not current value  Capital improvements/repairs  Assets 5

DEPRECIATION – Remember, rules have changed  Unit of Property (UOP) = each building + structural components  Unless.. Component is a building system  Structural Components = walls, partitions, floors, ceilings, permanent coverings, windows and doors and other components relating to the operation or maintenance of a building  Building System = HVAC, Plumbing, Electrical, Escalators, Elevators, Alarm/fire-protection, Security, etc. 6

DEPRECIATION – Remember, rules have changed  Improvements to a building system must be capitalized:  Betterment of the unit of property  Adapt to a new or different use  Restore unit of property  Repairs and replacements must be capitalized if they:  Increase the value of the property  Make the property more useful  Lengthen the property’s life, or  Adapt the property to a new or different use * But can recognize loss on the retirement of a structural component 7

DEPRECIATION  Once you depreciate, have to continue unless you get a private letter ruling from the IRS  Can expense routine maintenance if deemed not to improve 8

EXPENSES: 1098 Mortgage Interest Statement  Mortgage Interest  Points  Property taxes  PMI 15 9

EXPENSES: Travel to and from Deductible if primary purpose is to manage, collect rental income, conserve or maintain the rental property  Actual expenses, or  Mileage If use Management Company, they typically get the travel 10

EXPENSES: Other Other Schedule E Expenses AdvertisingOther interest (other than mortgage) Cleaning and maintenanceRepairs CommissionsSupplies InsuranceTaxes Legal and professionalUtilities Management 11

RENTAL LOSSES  Capped at $25,000*  *Phases out at MFJ AGI $150,000 (reduced starting at $100,000) (MFS AGI $50,000 - $75,000)  Loss carried forward  Against eventual sale  Or when income is lower 12

FORECLOSURE: 3 Ways to Handle 1.Put on return  Cancelation of debt (1099C)  Sales price Should cancel out 2.Insolvency (see worksheet) 3.There is a third way….. *No personal exclusion on rentals 13

REAL ESTATE PRO vs RENTALS REAL ESTATE PRO CAN FULLY DEDUCT ALL RENTAL LOSSES IF:  They spend over 50% of their total working hours and  More than 750 hours each year materially participating in real estate activities *Time driving to/from rental homes can be counted *Time spent as an investor doesn’t count (research, refinancing, etc.) RENTALS - $25,000 LOSS LIMIT  Phase out AGI > $100K (50%) - $150K MFJ (100%) Also note, up-front money from tenants is treated as rental income 14

USE A TAX PRO  TO HELP YOU PAY THE MINIMUM REQUIRED TAXES  TO HELP YOU PLAN FOR YOUR FUTURE (tax consequences and retirement)  A self employed person can contribute to an IRA and SEP  TO UNDERSTAND TAX IMPLICATIONS OF ANY MAJOR FINANICAL DECISIONS  TO KEEP UP TO DATE ON TAX RULES RELATED TO REAL ESTATE  THROUGHOUT THE YEAR, NOT JUST AT TAX TIME 15

437 Laverne ● Clovis, CA Ofc: (559) ● Fax: (559) Roxie French, EA Sandra Borchardt, CPA 16