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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 6105
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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I moved to Florida in Dec of 2012 to start a new job. I have

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I moved to Florida in Dec of 2012 to start a new job. I have a house in NC that I am renting out(which I moved out of to move to Florida). I have a few questions:

1. Do I have to file a North Carolina return for income received from the rental house?
2. Can I deduct expenses related to the rental house? Such as gutter cleaning, plumbing repair, etc?
3. I pay a management Company to collect rent, etc, are their fees deductible?
4. Can I pre pay the taxes I will owe on the rental property?(I haven't paid any taxes yet and I will owe a lot by the end of the year)
5. If I file for an "extension" in April, does that extend the time I have to pay the taxes I will owe, or is everything due by April 15?

Thank you.

Stephen G. :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything that is not clear.

Stephen G. :

OK, let's take your questions in order........................................

Stephen G. :

1. I presume that you filed a North Carolina (NC) return for 2012 and are asking about 2013. The answer is yes you do need to file a NC return to report the rental property activity for 2013 & you will be taxed on the net income from the property. You will want to complete your federal Schedule E on the rental activity first, and then move to the NC return after your federal is completed.

Customer: Ok thank you. Yes I did file a NC return in 2012 but did not have any rental income.
Stephen G. :

1(a). Don't forget to include depreciation on the rental property. The cost of the home would be allocated between land & building (usually based upon the ratio of the land/building in the real estate tax assessment). The building (not the land) must be depreciated over 27 1/2 years.

Customer: Good call out. Thank you.
Stephen G. :

1(b) Hopefully the fair market value (FMV) of the property as of 1/1/2013 is greater than your original cost + improvements; if so you use your cost + improvements as your tax basis in the home. If the FMV is lower, you must use the FMV.

Stephen G. :

2. Yes you can deduct all the expenses related to the home, repairs & maintenance, taxes, insurance, whatever you incur & PAY during the year.

Stephen G. :

3. Management company fees are deductible.

Customer: I am not sure. We paid $249,000 for the house brand new. Not sure what its FMV was in Jan.
Stephen G. :

4. What taxes are you talking about? Income taxes to Federal & NC, or real estate taxes?

Customer: Income taxes. I am really worried about how much I will owe. We have been taking in $1,500 per month and I have not pre paid any tax liability on that money.
Stephen G. :

5. An automatic extension DOES NOT extend the time to pay the tax. In fact, if at least 90% of the tax that you ultimately owe is not paid by 4/15, the IRS can invalidate the extension, subjecting you to additional penalties and interest.

Customer: 5. That is what I thought but wanted to confirm.
Stephen G. :

Well you won't be taxed on the whole $1,500., just the net profit.

Stephen G. :

How much did you pay for the home, + improvements, approximately?

Customer: $249,000 purchase price in 2006. Roughly $10,000 in improvements, that may be a little conservative.
Stephen G. :

Allowing for 1/3 of the 259K to be allocated to the land, the 2013 depreciation would be approximately $6,300. So that means you'll have $6,300. of expense that won't require any cash outlay.

Stephen G. :

Do you have a mortgage?

Stephen G. :

a mortgage on the NC property? Monthly payment is approximately how much?

Customer: Well, umm, no. The house is in foreclosure. We walked away from it but it is still in my name. I have received my chapter 7 discharge but the bank hasn't officially foreclosed yet. So, on the advice of counsel, I rented it out.
Customer: Does that affect my tax liability?
Stephen G. :

ah, the plot thickens

Customer: Yep.
Stephen G. :

Well, hopefully the bank will do what it is supposed to do & foreclose and since it was your principal residence, there are exceptions to the debt forgiveness income that you should qualify for.

Customer: Such as?
Stephen G. :

In the bankruptcy, you were allowed to keep the house & the bank would have to foreclose to get it?

Customer: I originally filed a chapter 13 to keep the house. I got the new job offer, didn't need the house, and switched to a chapter 7, 2.5 years into a 5 year chapter 13 plan.
Customer: In the chapter 7 I "walked away" from the house.
Stephen G. :

The house was your principal residence, correct?

Customer: Yes
Stephen G. :

You will need to complete Form 982 to file with your tax return when (if) you receive a Form 1099(C) from the bank. You have an unusual situation. Have you heard anything from the bank? Does your tenant know that he may have to leave?

Stephen G. :

The forgiveness/Form 982 is another whole topic, but it shouldn't be a problem for you.

Customer: Yes the tenant is fully aware.
Customer: I have not heard from the bank
Customer: So, only file the form 982 if I receive a 1099 from the bank?
Stephen G. :

The so called "Mortgage Forgiveness Act") provisions (which will apply to you) have been extended through 2013. If Congress ever decides to do anything, I wouldn't be surprised to see it further extended.

Stephen G. :

Are you all set now on the "rental property"?

Customer: Yes, it sounds like I need a little more than "Turbo Tax" this year to do my 2013 taxes.
Stephen G. :

I don't think so. TT can handle this & you can always get help here.

Customer: That's awesome. Thank you so much.
Stephen G. :

I'll leave my contact info for you, now that I know the background.

Stephen G. :

If you need to contact me again with any tax or financial questions, you can just ask for "Steve G" at the beginning of your question. Again, please remember to rate my response. Bonuses, where you think they are warranted, and excellent ratings, are always most appreciated. Thanks again for using may get a short survey from the site; if it isn't too much trouble I would appreciate it if you would answer it; the survey results are used to rate our performance;

Customer: Great. Thanks again.
Stephen G. :

PS Don't spend all the rent money; keep at least 25% to be safe;

Customer: Thanks. Good advice.
Stephen G. :

Please remember to rate my response;

Customer: Yes sir. Thank you so much. I feel better now. I was stressing over the tax I will owe. Good to know all those expenses can be deducted.
Stephen G. :

Yup, no problem with that.

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