Have a Tax Question? Ask a Tax Expert
You are now the proud owner of a rental home which is reported on Schedule E page 1. All the expenses including interest, depreciation and property tax for this property will reflect on Schedule E.
The additional cost to fix up the property will be capitalized and depreciated over 27.5 years. If there were items in the house that were fixed as regular repairs or were minor amounts, you can categorize them as repairs expense on Line 14 of Schedule E.
It is not a personal home.
You do not need to prorate between personal use and rental since it is 100% rental.
Renters insurance is always a good idea. However, I would recommend discussing you options with your insurance agent to determine the best plan that fits your needs.
You do not have to have an LLC to have a rental property. The LLC does provide some protection to you personally. However, with only one property, you may want to consider an Umbrella Insurance Policy to mitigate some of the risks. This is another discussion to have with the insurance agent. Note: LLC's are great, however they do cost more to set-up and maintain (i.e. filing requirements).
You should file a tax return in Mississippi due to the rental property. However, keep in mind that by the time you pay all the expenses, you will probably have a break-even/loss scenario. Review the Schedule E for all the different types of expenses and there is also the other deductions section at the bottom. This is usual after depreciation.
If you have any questions, please do not hesitate to contact me.
This is one of those areas that are not so clear in the code. What many of my clients do is make a policy that any expense for repairs/replacement or maintenance that are over a certain dollar limit (say $500) are capitalized while the amounts under that are expensed. If you capitalize everything, it becomes a record keeping nightmare. The other test that you would apply is if the work done is totally replacing items (say carpet) which would be capitalized or fixing a faucet which would be expensed.
From my understanding of the first message, your daughter was paying rent also.
If you have her pay in market rents $500, you could take more of the deductions at the rental level. How she received the $500 per month to pay the rent is up to you. A gift would not result in any reporting issues since it is under the yearly limit. If you do this I would run two separate rental properties on Schedule E. One as the regular rental and the other as the related party portion and indicate related party in the software. This will cause any losses associated with the related party to be suspended on this portion of the rental. You could also increase her rent or your gift to keep her portion from having a loss.
Or you could allocate a portion of the expenses off the rentals and take part of the interest expense and property taxes on the Schedule A. This gets a bit more messy and hard to track.
See page 13 of the attachment below:
You are limited to $25,000 losses.
The only area you need to be careful with is not creating losses with related parties (daughter) since this is not allowed.