Huddleston Tax Weekly

If you own some property and decide to start renting it out, there are a few things you should note for tax purposes.  If you change your home or other property to rental use at any time during the year, then you  must divide the expenses, such as taxes and insurance, between rental and personal use. 

For example, if you start renting your home out on July 1st, then for the year, 50% of all expenses will be deductible on Schedule E to offset rental income.  Examples of the expenses would be mortgage interest, taxes, cleaning and maintenance, and utilties.  For the 1st half of the year only mortgage interest and taxes would be deductible and would go on Schedule A of your tax return.

For depreciation purposes you should use the conversion date as the date the property was placed in service.  So in the above example on the depreciation schedule you would list July 1st as the date placed in service.  The first half of the year would not be depreciable for tax purposes since it was used personally. 

The big thing to note is that once you convert the property to rental use you need to start tracking expenses as of the conversion date to make sure you are recording all your expenses for tax purposes.

If you own rental real estate property you may be wondering what all can be deducted as expenses on your tax return.  There are a few general rules about deducting rental expenses.

• You can generally deduct your rental expenses in the year you pay them
• You can start deducting expenses paid from the time you make it available to rent, whether or not there is an actual tenant.
• You may not deduct uncollected rent.

When it comes to repairs and improvements, repairs may be fully deducted in the year they are paid, while improvements must be depreciated over their useful like.  A repair is anything necesssary to keep your property in good operating condition and does not materially add value to the property or substanitally prolong its life, such as painting, fixing leaks, or replacing broken windows.  An improvement adds value to the property, prolongs its life, or adapts it to new uses.  Some examples are additions of new rooms, new roof, new carpeting.

Here are a list of other expenses that are generally deductable on your tax return.

• Advertising
• Cleaning and maintenance
• Utilities
• Insurance
• Taxes
• Interest
• Commissions
• Tax return prep
• Travel
• Local Transportation Expenses

If you have any questions abotu whether or not expenses are deductible or if they have to be depreciated, please contact your tax professional for help.

When you own a rental home the rental income is any payment you receive for the use or occupation of the property. All rental income must be included in the gross rental income on the Schedule E of your 1040 tax return.

You must report rental income according to the following:

1. You must report income on your return for the year you actually received it.
2. Any advance rent must be included in income when you receive it, regardless of the time peroid it is for.
3. You do not include security deposits as income if you plan to refund it at the end of the lease. If you end up keeping part or all of the deposit, then it becomes income the year it was kept.
4. If you rent property that you also use as your home and it is rented for fewer than 15 days of the year, then do not include the rent you recieve as income and also, do not deduct the expenses.

If you have any questions about whether or not money collected is actually rental income that should be included on your tax return then it is best to consult your tax advisor.

Do you own your own home? If you own your own home and itemize deductions on Schedule A on your personal tax return (form 1040) then you can deduct any real estate taxes you pay. This is one of the tax benefits of home ownership. Real estate taxes paid on your second or vacation home can also be deducted on Schedule A of your tax return.

Remember when it comes time to pay your taxes that you may be making your real estate tax payments through your escrow account with your mortgage and not writing checks directly to your county or state. Often times your mortgage company will report the property taxes paid through your escrow account on your mortgage 1098 form.

If you have any questions about whether or not the taxes you have paid during the year are deductible on your tax return, be sure to consult a tax professional.

Seattle/Bellevue Tax Accountants

When you own a home and you pay a mortgage on it, then the interest on that mortgage may be deductible on your tax return.  Any interest paid on a line of credit or home equity loan also counts as mortgage interest.  You can deduct mortgage interest only if you meet the following:

1.  You must file form 1040 and itemize on Schedule A

2.  You must be legally liable for the loan

3.  The mortgage must be a secured debt on a qualified home in which you have an ownership interest.

A qualified home is your main home or second home and a home includes a condo, co-op, mobile home, or boat.

You can also deduct late payment charges from your mortgage as mortgage interest and any prepayment penalties you may have paid. 

Mortgage interest is reported to you on form 1098 each year, as long as the total interest paid was more than $600. 

There are limitations on how much home mortgage interest can be deducted.  The total amount of debt you can treat as home acquisition debt at any time on your main and second home cannot exceed $1 million.  In addition to the $1 million of home acquisition debt, you may also deduct interest on up to $100,000 of home equity debt.

If you have any questions on whether or not you are correctly deducting your mortgage interest feel free to contact us.  www.huddlestontax.com

If you filed your tax return months ago and still have not received your refund or economic stimulus check then you need to check with the IRS.  If the IRS has your incorrect address, then all it takes is an address update with them and all your missing checks will be mailed to you.

If you are wondering where your stimulus check is, then you can visit the “Where’s my stimulus check” part of the IRS website or call 1-866-234-2942.  By law all stimulus checks must be mailed out by December 31, 2008, so time is quickly running out!

If you are wondering where your refund check is, then you can visit the “Where’s my refund” part of the IRS website or call 1-800-829-1954.  In order to check the status of your refund online you must know your Social Security Number, filing status, and amount of refund shown on your 2007 tax return.  This online tool will then tell you if your address is incorrect or if there is some other problem with your return. 

If you find that your refund check is being held up for some other reason than an incorrect address then the IRS should notify you of the problem.  If there is any problem with your return that you can’t seem to resolve on your own, then feel free to contact us for help.  www. huddlestontax.com

The easiest way to avoid future problems with your tax returns is to choose to file electronically and to choose to have your refund directly deposited into your bank account.