This year i plan to start a small business as well as a rental property, I have a few tax questions?
concerning my rental. I wanted to charge $750.00 monthly minus certain utilities included amounting to $150.00. So I have a proffit of $600.00 each month. Can I offset this proffit with the monthly mortgage payment of $600.00 (P&I )or can I just claim mortgage interest, insurance costs and depreciate the buliding over 30 years. Can I exspense any repairs against the profit or do I have to depreciate them. Example a new roof might cost 5-7 thousand dollars. If I have to depreciate that over 30 years that doesn’t amount to much but that sure was a lot to come up with now.
Concerning the business, I plan to start a home based carpentry business. I would like to spend roughly 20k – 30k on a workshop that will serve as a business hub at my physicall residence. I would prefere this over an in town based business for obvious reasons. Now can the business pay myself rent to use the bulding and claim this as a business exspense, and I claim mortgage intrest and depreciation for myself.
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Tags: Mortgage Payment, Proffit, Property Tax
rent property | , 26 Apr 10
By peachygurl86, April 30, 2010 @ 2:01 am
When renting out real estate, these are the expenses you can take to offset your costs: Mortgage Interest, Insurances, Utilities, costs of finding tenants (advertising fees, credit checks etc), repairs,depreciation of the building and any furniture and fixtures you have placed in the home.
You can expense repairs such as painting, fixing plumbing etc. If you replace something such as the carpet or a toilet, you have to depreciate that new asset you placed in your rental. Any capital improvements you put into the house should be depreciated over 15 years. The building can be depreciated over 27.5 years.
If your business uses a building you own, it can pay rent to you and you would claim it on Schedule E of your 1040. Any expenses you incur (not your business) would be deducted from the rental income you report on Schedule E. If the business pays for any of the expenses related to the rental, the business would deduct them and you’d put that income and deductions on Schedule C.
Check out the IRS’s website for small businesses to get answers to any specific questions you may have:
By RAG, May 2, 2010 @ 6:11 am
I would be very careful how you report the home based workshop. If you are deducting expenses related to your home there are forms you need to file allocating the interest, taxes and other expenses between your business and your personal home. There are also limits on losses you can deduct when you are renting property to a related party. And when you are leasing to yourself you are definitely a related party. You need to be reasonable about rental income and expenses. The IRS does not like you deducting an excessively high non market based rental expense on your Sch C and increasing your Sch E unearned income. This will decrease you self-employment taxes owed on your net business profit.
You are also raising your exposure to being audited by the IRS when you file a Sch C let alone start renting property to yourself.
Watch out.