Rental property income and expenses are reported on Schedule E. All your costs of ownership and rental operation are allowed expenses that offset your rental income. You also take your depreciation expense on Schedule E. Up to $25K in net Schedule E losses can be used to offset your other ordinary income but there are income limits that reduce this “passive loss allowance” for higher income taxpayers.
Rehab and flip property, if owned in your own names, is considered acquired in the year in which the property is sold. You report your share of all your property expenses (purchase cost, rehab cost, holding cost, etc.) as the Cost of Goods Sold on Schedule C as well as your share of the net sale proceeds. Until the rehab-flip property is sold, you and your partner accrue all your costs for the property – you don’t have any deductible expenses.
Investment Property and Income Tax Question - Posted by Michelle Wood
Posted by Michelle Wood on May 20, 2007 at 20:35:15:
How do I file my income tax…when I have a primary residence and and investment property that I was a co-borrower on…I am on the deed. So what deductions do I have for this investment property? How does that work if you a partner with someone on an investment property and your taxes? This information will be greatly appreciated.
Your tax treatment depends upon the property and what you are doing with it. We don’t have enough information to answer your question.
Vacant land held for future appreciation, property held for rental use, property you will use as a vacation property, and property you will (rehab and) flip all get different tax treatments.
The key will be that the numbers between you and your partner need to agree - how you divide them is up to you. For example, if you had $2,000 in repairs but you take $1,000 and your partner takes $2,000 then both of you will have a problem. Receipts for expenses is helpful in determining what can be split. If you are 50-50 on the property, use half the basis of the building for depreciating and divide the expense.