Is a rental property I manage considered business income? depreciable asset?

[tenant2021]

I own a rental property. I manage the property and have a real estate license. For, example, if the AC breaks, I research and contact an AC company to come fix it. I do not do the repairs myself when a tenant is living there. When someone moves out, I go and paint and do the repairs around the house myself, and get it ready for the next tenant.

Can this be considered business income? Could I also use this property as a depreciable asset?

 

[quincy]

I own a rental property. I manage the property and have a real estate license. For, example, if the AC breaks, I research and contact an AC company to come fix it. I do not do the repairs myself when a tenant is living there. When someone moves out, I go and paint and do the repairs around the house myself, and get it ready for the next tenant.

Can this be considered business income? Could I also use this property as a depreciable asset?

What is the name of your state?

Can what be considered business income? Rent payments?

 

[adjusterjack]

I own a rental property. I manage the property and have a real estate license. For, example, if the AC breaks, I research and contact an AC company to come fix it. I do not do the repairs myself when a tenant is living there. When someone moves out, I go and paint and do the repairs around the house myself, and get it ready for the next tenant.

Can this be considered business income? Could I also use this property as a depreciable asset?

Yes and yes.

You report the income and expense on Schedule E.

2022 Schedule E (Form 1040) (irs.gov)

2022 Instructions for Schedule E (irs.gov)

Page 8 of the instructions has a section about depreciation which will lead you to the forms and booklets.

If you have rented out this property in years prior to 2022 and have not filed Schedule E for those years you will need to file amended federal tax returns.

I suggest you have a tax pro do this for you to lay out the format for future returns, especially if you have to file amended returns.

You should also check to see if your state (or any other government agency) requires registration of the rental for property tax or other purposes.

 

[adjusterjack]

You posted a second before my post went up. It answers your question.

 

[tenant2021]

Yes and yes.

You report the income and expense on Schedule E.

2022 Schedule E (Form 1040) (irs.gov)

2022 Instructions for Schedule E (irs.gov)

Page 8 of the instructions has a section about depreciation which will lead you to the forms and booklets.

If you have rented out this property in years prior to 2022 and have not filed Schedule E for those years you will need to file amended federal (and state if you pay state income tax) tax returns.

I suggest you have a tax pro do this for you to lay out the format for future returns, especially if you have to file amended returns.

You should also check to see if your state (or any other government agency) requires registration of the rental for property tax or other purposes.

Thanks for your response. It is very helpful. I will need to check previous returns.

In previous years, my wife's company handled our tax returns. They are no longer handling it, and am on my own this year.

I live in Texas, so no state or local tax.

One last question I have. For standard deductions, when entering real estate tax, can you add the real estate tax from both your primary residence and rental property? Or only primary residence? I assume you can use both.

 

[davew9128]

Yes and yes.

Rental real estate income by definition is not business income. See IRC 1402. It may be considered a trade or business for some purposes in the tax code, but for the colloquial definition it is most certainly not.

 

[doucar]

It is taxable income.

 

[Taxing Matters]

One last question I have. For standard deductions, when entering real estate tax, can you add the real estate tax from both your primary residence and rental property? Or only primary residence? I assume you can use both.

The real estate tax you pay on your home and the real estate tax you pay on investment real estate are both deductible, but in different places on your tax return. I agree with the previous posts that suggest you get a tax professional familiar with rental properties to help you with the returns. There is a lot more to the rental than you may realize. There's depreciation, for example. IRS Publication 527 would be a good place to start to begin to understand the federal income tax treatment of rental property. Note that you do not get a deduction for the value of your own labor that you put into the rental property.

One note on terminology: these deductions are not a "standard deduction." They are itemized deductions for your home and rental property expense for the rental.

 

[adjusterjack]

One last question I have. For standard deductions, when entering real estate tax, can you add the real estate tax from both your primary residence and rental property? Or only primary residence? I assume you can use both.

The real estate (property) tax goes on the Schedule E as an expense.

 

[tenant2021]

I was able to contact the employee at a firm that did my taxes the previous years and got my questions answered. I noticed under the depreciable asset value for my rental, they made an error. For whatever reason, they did not realize my home was rented out the entire year and used $3785 less for the depreciation then they should of. I had 1 tenant move out, and the next one move in the day the first tenant's lease expired. They ended their lease early, when I found another person available to start a new lease.

The employee told me to add the $3785 that was not used in 2021's depreciation to 2022's depreciation value. You can add depreciation not used from a previous year to the current tax year?

Is this advice accurate?

 

[adjusterjack]

My guess is no.

I think the right way is to file an emended return for 2021.

 

[davew9128]

Did you have a suspended passive loss? I wouldn't necessarily say they were wrong to say that if that is the case. If not, then yes amend, and they should be offering to correct the error.

 

[tenant2021]

I emailed her again for clarification. I misinterpreted her initial email. There is a form 8582 for passive activity loss. I can add the amounts from the missing depreciation in 2021 to 2022 on 8582 for passive activity loss carryforward. This represents what the loss carryforward amount would have been if claimed in 2021. I have unallowed losses from 2021.

There would be no change to tax (would be amendment that would result in no refund or tax owed) if there was a 2021 amendment. It is also incorrect to add the 2021 to 2022 rental expenses.

There is a separate section for this in the current tax year.

Does this sound right?

 

[davew9128]

Sounds right to me.

 

[LdiJ]

I emailed her again for clarification. I misinterpreted her initial email. There is a form 8582 for passive activity loss. I can add the amounts from the missing depreciation in 2021 to 2022 on 8582 for passive activity loss carryforward. This represents what the loss carryforward amount would have been if claimed in 2021. I have unallowed losses from 2021.

There would be no change to tax (would be amendment that would result in no refund or tax owed) if there was a 2021 amendment. It is also incorrect to add the 2021 to 2022 rental expenses.

There is a separate section for this in the current tax year.

Does this sound right?

No, you would need to amend the 2021 return to correct the loss carryforward. You really need to consult with a different tax pro.

Also, just FYI, the rental doesn't necessarily need to be rented for the full year to take the full year's depreciation and other expenses. You just need to be actively trying to rent it out.