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Tax Deductions on New Real Estate

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    Tax Deductions on New Real Estate

    Hello savers,
    I'm new to real estate investing. I bought my first property in late December, so I only had about a week of rent and tons of initial expenses. Now I'm trying to figure out the taxes...

    Here's what I have so far:
    *a few days of rent as documented on a 1099-Misc from my management company

    *one month and a few days of HOA fees as documented on my closing documents
    *mortgage insurance (for the whole year of 2020, but paid in 2019)
    *depreciation (purchase price minus appraisal estimate of land value over a 27.5 year period)

    1) Is there any place where I can deduct my origination fee, processing fee, various title fees, or other closing costs? I assume it can be counted as some type of sole proprietorship start up cost and amortized over a period, but I haven't found instructions.

    2) How about my mileage going out to see the building, then signing the documents? Note: I stayed for 2 weeks (into 2020) for Christmas with family up there, but I would have gone for the business portion even if it were not near family. I'm not going to buy my first property blind.

    3) I took out a loan against my retirement account for part of the down payment. I assume there's no tax benefits for those expenses, but if anyone happens to have and idea, I'd love to hear it.
    Personal Finance Blogger, Mechanical Engineer, and Mother of 3 Toddlers

    TexasHusker can most likely provide some insight here.

    But, I'd recommend a good CPA who deals in real estate


      Okay, here's what I've found:

      Legal and recording fees, abstract fees, survey charges, owners title insurance, and amounts the seller owes that you agree to pay are all added to the basis of the property for depreciation purposes (see Publication 551). The simple way to think of it is any expenses that you would have had to pay if you were paying in cash (no loans). I entered these expenses added to the non-land value of my real estate on Form 4562, line 19h, column c. Then used the instructions to calculate the depreciation for 2019.

      I'm still trying to figure out the loan fees. I know they are deductible over the life of the loan, but I can't figure out what form they go on!
      *Schedule E's instructions state "Points, including loan origination fees, charged only for the use of money must be deducted over the life of the loan."
      * states: "Deductible closing costs include: obtaining an appraisal or inspection required by the lender, mortgage insurance premiums, title fees, loan origination fees, recording fees and abstract fees. These points and fees, paid on the loan, are deductible over the life of the loan."

      I've given up on the mileage since it wasn't a business vehicle and we spent many days on vacation as well as on business.
      Personal Finance Blogger, Mechanical Engineer, and Mother of 3 Toddlers


        All of that is way above my pay grade. When you have real estate as an investment, I highly recommend a CPA, to keep you out of hot water and maximize your tax savings.
        Never underestimate the power of stupid people in large groups.

        -George Carlin


          Here's what I figured out:
          I was able to figure out the car stuff. I just list my car in part 5 of 4562. I don't have to fill out most of the boxes, just abc of 26 and Section B (mileage). This was a $550 deduction for 2019 and a $510 deduction for 2020 (since I drove home in January). Wahoo!

          According to some accountant who responded to me on biggerpockets, the origination fee can be listed in part 6 of 4562 and is amortized over the loan period, but since I didn't start loan payments until Jan 2020, it will not be on this return. The only question I have remaining is what to put in column d for "code section". None of them are quite right. The good news is I can file now and figure that part out next year.

          I also payed nearly $8,000 on my father-in-law's taxes (yikes!). Turns out he gets the deduction, because they were his taxes despite evidence we paid them. It stinks because he doesn't owe anything after deductions. Can't wait to get those properties out of his name.

          Ready to file. Just need to convince my husband I am competent and he should sign. He still wants me to pay H&R block to do it for me. I got frustrated with them though because I couldn't figure out how to take the standard deduction on Federal, but Itemize on State despite that clearly being an option on the actual forms.
          Last edited by Milly; 03-16-2020, 11:06 AM.
          Personal Finance Blogger, Mechanical Engineer, and Mother of 3 Toddlers