Posted by Anne-ND on February 15, 2000 at 13:51:18:
Rental Real Estate Tax Guide (or something like
that) by Crouch- 1999
Newbie has a questions for Rehabbers - Posted by DanFL
Posted by DanFL on February 12, 2000 at 19:59:36:
Hello everyone. Ive been following this website for about 6 months and finally have a house i am closing on monday. My questions are- While I am rehabing the house how do i keep good enough records and what should they include so that when i am finished, i can use them as deductions? I realize that receipts should be kept but what else can i use as deductions? How about the time I spend doing the work. How do I compensate myself for that? Is it determined as an hourly figure( and how should it be determined?)?
Im located in Central Florida. I know the laws maybe different from state to state. I thank everyone in advance for their reply.
My Simple Record Keeping for Rehabs - Posted by Glenn-PA
Posted by Glenn-PA on February 13, 2000 at 06:43:08:
Dan - I’m a part timer and have bought, fixed up and sold four properties to date. I normally only own one property at a time so my record keeping method is simple. I set up a line of credit. To access the credit line I have a credit card and checks. I save all receipts. The credit card company sends a monthly statement of all account activity. If I buy supplies I’ll use the credit card. If I pay a contractor, I write a check. If I have to use cash for some reason I can write myself a check and make a note in the memo section. When the house sells, I zero out the credit account. I tally everything up at the end of the project and I’m done! In essence the credit company keeps my records for me. Hope this helps - Glenn-PA
Bob…is correct for rentals BUT for rehabs here’s what you do. - Posted by scott
Posted by scott on February 12, 2000 at 22:06:25:
QUESTION:
>While I am rehabing the house how do i keep good >enough records and what should they include so that >when i am finished, i can use them as deductions?
Answer:
A tip for keeping your records for each rehab is to buy a spiral notebook and tape all the receipts for EACH rehab on one page.
On rehabs the expenditures will increase your basis in the property and NOT be used as deductions. You will add all the expenses of that property back to your orginal basis which will increase your cost and narrow your profit margin.
>I realize that receipts should be kept but what else >can i use as deductions?
Answer:
Mileage, Office expenses, and whatever else you incur in the normal course of business. I recommend you buy a book on the subject.
>How about the time I spend doing the work.
Answer:
Your personal time is not used to increase your basis in the rehab nor could it be used as an expense on a rental property.
>How do I compensate myself for that? Is it determined >as an hourly figure( and how should it be determined?
If you have a Professional entity (INC. LLC. etc…) you will pay yourself as an employee for Mgt purposes and the like…but you should not pay yourself as a rehabber.
The more you know, the profit you’ll make. Buy a book on business expenses. Or go to www.irs.gov and order the publication on business expenses. It’s free
Scott
Re: Newbie has a questions for Rehabbers - Posted by Bob Hanson
Posted by Bob Hanson on February 12, 2000 at 21:19:39:
Dan,
Spend a few bucks and go to an accountant to set up a template for you or at least look at a schedule E tax form and read up on how specific expenses are handled tax wise. Generally, you can’t deduct the cost of your labor (in the simple individual case), but you can deduct legitimate expenses paid to family members,
kids, nephews etc. for work they perform. If I look back at my biggest mistakes starting up, it was not getting the accounting set up right with my partner, it cost me big time and I never had a good sense of what I had into the place until it was all over.
Get off on the right foot, at least a Quicken spreadsheet set up so expenses flow into the proper tax categories, which can then flow into Turbo Tax and your end of year work is minimized. BTW, in rehabbing, hit it hard and fast, it takes just as many hours to rehab the place grabbing a few hours after work and weekends as it does getting two shifts of people working daily, but you reduce the risk of vandalism and start getting rent in 1/3 the time.
Good Luck to you,
Bob H. (the one in Hyde Park NY)
Important Tax reads… - Posted by HR
Posted by HR on February 13, 2000 at 07:47:14:
- Keep your hard earned money by Fellman.
- Taxes for Dummies (Despite being a dummy book, it is actually really good.)
- Aggressive Tax Avoidance for Real Estate Investors by John Reed.
- The Real Estate Professionals Bible of Tax Strategies by Ayella (available at www.mrlandlord.com).
- How to pay zero taxes by schnepper
- The real estate investors tax guide by Hoven.
- What the IRS doesn’t want you to know by Kaplan.
These books are all excellent. This is such an important subject matter, it behooves you to learn as much as you can about taxes and accounting (at least what is relevant).
If you are renevating and keeping the rental you use the expenses on 1040 Schedule E. If you are renovating and then selling to an end buyer, you use the line items on 1040 Schedule C (unless you are using a corp, partnership, or llc with two or more people who are not you and your wife; then you use other forms. See an accountant. These forms are available at www.irs.gov.)
How do you find a good accountant? Ask around at your reia meetings; that’s how I found mine and she is excellent. Start a list of suggested names, call them over the phone as an initial screening, then meet with them in person to pick a winner.
Your first cpa doesn’t have to be your permanent one. You don’t need one who is going to do advanced tax planning yet. You need a competent person who can explain the basics of accounting and taxation at a reasonable fee and help you set up a simple accounting system (manila files mimicing the appropriate 1040 line items, with simultaneous tracking in Quicken) and answer basic questions.
Good luck! I coulden’t agree more with one of the other respondents: get this right to start, or your rehab will be twice as painful. Unfortunately, I’m speaking from personal experience.
Cheers,
HR