Solved

Rental property schedule E

Forum|Forum|4 years ago
April 8, 2022
2 replies
0 views

I purchased a rental property in 2021 with a few other people, and we have not yet started renting it out. Do we report the purchase of the property on schedule E or do we wait until we start renting it out? I understand we cannot record rental expenses until we start renting it out, so I am simply asking if we should record the purchase on our 2021 1040 schedule E, or should this be done in 2022 assuming we start renting it in 2022..

Not A Product Question

Best answer by Anonymous_

@chelsatx13 wrote:

I understand we cannot record rental expenses until we start renting it out....

You cannot deduct typical rental expenses (such as utilities, cleaning and maintenance, repairs) until the property is available for rent; it does not have to actually be rented (i.e., a tenant is occupying the premises).

A

Anonymous_Answer

Employee

@chelsatx13 wrote:

I understand we cannot record rental expenses until we start renting it out....

You cannot deduct typical rental expenses (such as utilities, cleaning and maintenance, repairs) until the property is available for rent; it does not have to actually be rented (i.e., a tenant is occupying the premises).

C

chelsatx13Author

OK thanks. It is currently NOT available to rent. With that said, my question is; Do I need to fill out a schedule E on my 2021 1040 tax return and report the purchase of the home. I understand I am not reporting the expenses, rather, the purchase of the home. Or, do I wait to record the purchase during the tax year that the home becomes available to rent?

A

Anonymous_

Employee

If there is no tenant occupying the property and the property is not available for rent, then there is nothing to report.

The only expenses you are able to deduct would be mortgage interest and property taxes (subject to limitations).

Carl11_2

Employee

Just a note at something that jumped out at me.

I purchased a rental property in 2021 with a few other people,

This sounds like a partnership to me. Especially if there's more than two owners. I would highly suggest you report this as a partnership, since that's probably what this is. By reporting all rental income/expenses/depreciation on a 1065 partnership return, the totals of "EVERYTHING" is entered on "ONE" tax return. Then the partnership will issue each owner a K-1 for there share of the income/expenses/depreciation on the property based on their ownership percentage (which does not have to be equal for all partners).

Each owner will need that K-1 before they can even start their personal 1040 tax return. It makes life a whole lot easier - especially when it comes to selling the property, having partners leave the endeavor, or bringing new partners into this.

Take note that the 1065 partnership return has a due date of March 15th each year. At this point, I see no need to file a 1065 for 2021, and not just because it would be late and incur late filing fees if you did so. ($205 per partner, per month late).

The only things deductible on the 2021 return at this point is mortgage interest and property taxes, and those are a SCH A itemized deduction. Splitting that among all partners (3 or more I presume) would most likely not be enough to get any partner's itemized deductions above their standard deduction anyway, and would most likely make no difference in the tax liability of any partner on their personal 1040 tax return. But since I don't know that for a fact, you should just split the property taxes and mortgage interest paid in 2021, equally among all the owners/partners.

A

Anonymous_

Employee

The mere co-ownership of property, even if used for rental purposes, does not automatically create a partnership.

See https://www.irs.gov/pub/irs-drop/rp-02-22.pdf

Carl11_2

Employee

The mere co-ownership of property, even if used for rental purposes, does not automatically create a partnership.

Never said it did. But with each individual reporting on their own SCH E it does have the high potential of creating an absolute nightmare when unexpected things happen.