Second home vs rental property and what's deductible

[LiverpoolWalrus]

I couldn't find an answer on the IRS website, so I thought I'd come here.

Let's say you own a rental property that you live in 1/4 of the year (3 months). It was marketed for rent all of 2020 but you received zero income in 2020 because of the pandemic. You lived in it for three months. Is it a rental property or a second home?

Are tax deductions like repair and maintenance allowed in both cases (rental property and second home)? I'm aware the deduction has to be the same proportion as the number of rental days.

And what's most important as I bought the property in January 2020 --- are expenses like furniture, decorations and housewares deductible? Are they only deductible if it's considered a rental property and not a second home, or both, or neither?

Thanks!

[Bass56]

I used turbo tax home and business for my property. It guides you through the whole process. Has a help line if you have any questions.
I reccomend using a professional your first time , especially under these covid times. Good luck.

[Stu from NYC]

I couldn't find an answer on the IRS website, so I thought I'd come here.

Let's say you own a rental property that you live in 1/4 of the year (3 months). It was marketed for rent all of 2020 but you received zero income in 2020 because of the pandemic. You lived in it for three months. Is it a rental property or a second home?

Are tax deductions like repair and maintenance allowed in both cases (rental property and second home)? I'm aware the deduction has to be the same proportion as the number of rental days.

And what's most important as I bought the property in January 2020 --- are expenses like furniture, decorations and housewares deductible? Are they only deductible if it's considered a rental property and not a second home, or both, or neither?

Thanks!

A lot of changes last year due to the pandemic. Taxes are normally way over complicated but now forgettaboutit.

Suggest talking to professional.

[retiredguy123]

I agree with using TurboTax or asking a professional for this situation. But, the IRS website says:

"A dwelling is considered a residence if it’s used for personal purposes during the tax year for more than the greater of 14 days or 10 percent of the total days rented to others at a fair rental value."

Also, the only expenses that would normally be deductible for a residence are mortgage interest and real estate taxes. The other expenses you mentioned would not be deductible.

[karostay]

I use a CPA for all my tax advice not TOTV

[dewilson58]

I use a CPA for all my tax advice not TOTV
:bigbow:

[Papa_lecki]

5 IRS Rules for Renting Out Your Vacation Home | Kiplinger (https://www.kiplinger.com/article/taxes/t010-c000-s002-5-irs-rules-for-renting-out-your-vacation-home.html)

3. If you use the place for more than 14 days or more than 10% of the number of days it is rented -- whichever is greater -- it is considered a personal residence. You can deduct rental expenses up to the level of rental income. But you can't deduct losses.

[LiverpoolWalrus]

Thanks for all the responses. I should have said that yes of course I’ll be getting professional advice in a few weeks. I was asking for this information because it’ll make it easier for me to tally only the numbers that are relevant. There’s no sense in adding up costs in my records that aren’t deductible.

But I appreciate the consistency in the let’s say “tone” of TOTV responses!

[Fredman]

5 IRS Rules for Renting Out Your Vacation Home | Kiplinger (https://www.kiplinger.com/article/taxes/t010-c000-s002-5-irs-rules-for-renting-out-your-vacation-home.html)

3. If you use the place for more than 14 days or more than 10% of the number of days it is rented -- whichever is greater -- it is considered a personal residence. You can deduct rental expenses up to the level of rental income. But you can't deduct losses.

Agree

[CoachKandSportsguy]

yes, TOTV has good answers, and depends upon your level of understanding of financial statements. First, if the house is exclusively for rental, then using a commercial mortgage, a commercial insurance policy and an LLC is the best way to file as a commercial entity and then post tax loss carryforwards.

Second, no one is watching you as far as personal days in the house. However, if you have any sort of insurance claim while using it personally, then you are opening up yourself to fraud claims.

We have our rental house in an LLC, commercial mortgage, commercial insurance and filing a partnership using Turbo Tax Business, not the same as home and business. Had to use it to file my dad's 1041 estate trusts every year since 2015. . distributions to my mom using K1s, same as LLC partnership to our income taxes.

but its not complicated, just do it in turbo tax business and then take it to a CPA and have him/her review it. . . instead of do it.

finance and tax guy.

I can give you a number to call on the air of a CPA who will answer your questions live on the air.

[DIver0258]

yes, TOTV has good answers, and depends upon your level of understanding of financial statements. First, if the house is exclusively for rental, then using a commercial mortgage, a commercial insurance policy and an LLC is the best way to file as a commercial entity and then post tax loss carryforwards.

Second, no one is watching you as far as personal days in the house. However, if you have any sort of insurance claim while using it personally, then you are opening up yourself to fraud claims.

We have our rental house in an LLC, commercial mortgage, commercial insurance and filing a partnership using Turbo Tax Business, not the same as home and business. Had to use it to file my dad's 1041 estate trusts every year since 2015. . distributions to my mom using K1s, same as LLC partnership to our income taxes.

but its not complicated, just do it in turbo tax business and then take it to a CPA and have him/her review it. . . instead of do it.

finance and tax guy.

I can give you a number to call on the air of a CPA who will answer your questions live on the air.

This response is why we use a CPA. Tax language is greek to us. We were in a similar situation in 2020. We totaled everything up and gave all of the info to our CPA and let her decide which deductions we could use and which ones were not applicable. We would much rather have my taxes prepared by someone that knows and is current on tax code.

[Singerlady]

Thanks for all the responses. I should have said that yes of course I’ll be getting professional advice in a few weeks. I was asking for this information because it’ll make it easier for me to tally only the numbers that are relevant. There’s no sense in adding up costs in my records that aren’t deductible.

But I appreciate the consistency in the let’s say “tone” of TOTV responses!

Use Quicken to track expenses. Easy peasy for you and accountant.

[Laurawilcox]

I was surprised as well of the limited number of days you can use your property if a second home. Officially anyway. We were asking the same question. Will definitely make second home investment a rental. Determine your goal for it as it will start carrying the advantages of depreciation, etc., that may need to be recovered later dependent on your plan. Do you need the tax breaks to have the obligations?

[LiverpoolWalrus]

Do you need the tax breaks to have the obligations?

Thanks Laura. I’m fortunate that I don’t “need” tax breaks. Just gathering Information.

[Mqtsnowdean]

You might want to check IRS Publication 527.

[ron@jayron]

Second home, not rental until you receive income

[Mohawksin]

Thanks for all the responses. I should have said that yes of course I’ll be getting professional advice in a few weeks. I was asking for this information because it’ll make it easier for me to tally only the numbers that are relevant. There’s no sense in adding up costs in my records that aren’t deductible.

But I appreciate the consistency in the let’s say “tone” of TOTV responses!
You should keep records of every expense that adds to the basis so you can calculate the gain when you sell it.

[TOMTOFVIL]

Not a professional but this is what I did. Just like any business you can have start up costs (expenses) prior to income in the following year. See IRS rules on startup costs, because not everything is included. Not sure since you have a ratio of 3 months to 0 if costs will be just be carry over losses, useful when you sell. Don’t forget travel expenses to buy house. Also, when you moved in did you spend days furnishing, repairing, getting tv etc. installed., I.e. business days?

[Cranford61]

[QUOTE=LiverpoolWalrus;1909776]Thanks for all the responses. I should have said that yes of course I’ll be getting professional advice in a few weeks. I was asking for this information because it’ll make it easier for me to tally only the numbers that are relevant. There’s no sense in adding up costs in my records that aren’t deductible.

But I appreciate the consistency in the let’s say “tone” of TOTV responses!
Has anyone ever made money on real estate rentals? After subtracting all you can, and factoring all grief, anxiety and angst with no shows, repairs, damages, commissions AND lost gains in the stock market, it seems like a stupid investment for people not having been successful in their previous career.

[mrf6969]

Every expense you have put into this home if it is going to be a business/rental property you have to make a decision on. The decision is are you going to claim them as an expense for the year or are you going to set up a depreciation schedule? Going into this process is where you need professional help. You start doing this yourself and you can get red flags up quickly if your not careful. Every year you have to explain what you are doing and why. The IRS loves to scrutinize rental properties.
Another thing that many folks do not realize that have rentals here in TV is that you need to collect the hotel tax. Any longer term rental over 6 months and a day then you do not need to collect this tax.
We have had rental property in TV for a few years now. Do yourself a favor once you are truly set up as a rental home, get a CPA.

[mrf6969]

[QUOTE=LiverpoolWalrus;1909776]Thanks for all the responses. I should have said that yes of course I’ll be getting professional advice in a few weeks. I was asking for this information because it’ll make it easier for me to tally only the numbers that are relevant. There’s no sense in adding up costs in my records that aren’t deductible.

But I appreciate the consistency in the let’s say “tone” of TOTV responses!
Has anyone ever made money on real estate rentals? After subtracting all you can, and factoring all grief, anxiety and angst with no shows, repairs, damages, commissions AND lost gains in the stock market, it seems like a stupid investment for people not having been successful in their previous career.
6 years and making money every year. Our is a long term rental home. Very hard to go into this if you are running a mortgage. No mortgage on ours and we net net a good $900. a month.

[Diverdave]

[QUOTE=LiverpoolWalrus;1909776]Thanks for all the responses. I should have said that yes of course I’ll be getting professional advice in a few weeks. I was asking for this information because it’ll make it easier for me to tally only the numbers that are relevant. There’s no sense in adding up costs in my records that aren’t deductible.

But I appreciate the consistency in the let’s say “tone” of TOTV responses!
Has anyone ever made money on real estate rentals? After subtracting all you can, and factoring all grief, anxiety and angst with no shows, repairs, damages, commissions AND lost gains in the stock market, it seems like a stupid investment for people not having been successful in their previous career.
I might just be lucky but for November through April I collect about $20K, and in 3 years the house has appreciated $50K.

Have had my challenges with property management but on the whole I feel like it has been worth it. We are moving down full time in a few months so I got income, appreciation and paid down the loan before I take residency. Works for me.

[LiverpoolWalrus]

Has anyone ever made money on real estate rentals...it seems like a stupid investment for people not having been successful in their previous career.

I’m taking cover!!!

[LiverpoolWalrus]

Let the record show that Liverpoolwalrus did NOT ask if anyone ever made money and that it seems like a stupid investment. Two quotes were merged together by two different posters unfortunately under Liverpoolwalrus’ name.

[manaboutown]

Has anyone ever made money on real estate rentals? After subtracting all you can, and factoring all grief, anxiety and angst with no shows, repairs, damages, commissions AND lost gains in the stock market, it seems like a stupid investment for people not having been successful in their previous career.

Yes, since I bought my first property in 1968, a four unit apartment building on Capitol Hill in DC for $28,000. Actually, I have been happily living on income from my rentals since I retired in 1994 at the age of 52.

Way back when I used Lasser's income tax guide and filed my own tax returns for a few years. I was meticulous about recording every expense as well as all income. My returns soon became lengthy and tedious prior to computerization so I started using accountants. Over the years I have had a few accountants quit on me. lol. When Turbotax first came out I played around with it but at that time it did not have all the features I needed. It probably does now but I have relied on CPAs since early on although I make sure to follow tax law changes. They have been worth every penny and more. I recommend a landlord find a good CPA who knows the ropes about rentals.

Over several years my father eventually acquired nine rental homes in the 1940s and 1950s while I was growing up. I was the slave who took care of the lawns and cleaned up and painted after moveouts. I learned a lot from that.

[Bay Kid]

I have a rental owned for over 20 years. The tenants paid for my rental. Now just clear profit every month. Same tenant. I promised not to raise the rent and they take very good care of the home. The value has really gone up also.