Taxes for Rental Property. What I Need to Know for Income Taxes?

Residential Rental properties are depreciated over 27.5 years.

Although there is more than one depreciation method, the most important thing to remember is that 27.5 years is the correct depreciation period to use. Commercial rental properties are depreciated over 39 years.

Did you know, there is a way to shorten the life of residential rental property and commercial rental properties? The way to do this is by having a cost segregation study performed. Please call me if you would like to understand how this works.

When a client converts their former home to a rental property, we ask for the following information:

Dear Jack: We need:

1. The original HUD settlement sheet cost when you bought your AZ home located on 111 E. Main Street Phoenix, AZ. 85004 Please see attached for an example. If you cannot find this document, please give us an estimated purchase price.

2. We need to see the real estate bill that broke out the land versus the building. Jack, If you do not have this information, how much do you think should be allocated to the land versus the building? Jack, the most common allocation is 80% to the building and 20% to the land. The land cannot be depreciated while the building is depreciated over 27.5 years.

3. We also need improvements you added so we can depreciate these improvements. Please list each improvement and the estimated cost you paid.

4. We need estimated land value so we can back out.

5. We need furniture, fixtures and equipment that you left at the Main Street home. I think you said you moved everything to Surprise.

6. We need to know what the mortgage interest and real estate taxes will be for 2013.

7. We need to know the effective date of the rental. By the way, you mentioned you received a deposit. Was the deposit refundable?

8. We need to know how much rental income you received in 2013.

9. We need to know what expenses you paid for after the home was rented.

10. Any information you think would be useful.

Jack, if you used part of this home for personal use during the year, would you let us know how many days you stayed at the house?

Jack, I know you also own and pay for your parent’s home. So, you have a total of three houses. You can only deduct interest on two of the three houses but you can deduct real estate taxes on all three houses.

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About Jeffrey Brooks

Jeffrey Brooks, CPA, CFP, MBA since 1976 has specialized in helping clients save significant taxes, help businesses increase their cash flow, revenues and profits while increasing their control and satisfaction. Jeff and his accounting firm sincerely cares about the happiness of his clients.

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JBrooks Wealth Advisors, PC.

Certified Public Accountant
Address: 4647 N 32nd Street, Suite B245
Phoenix, Arizona 85018
Phone: 602-292-2009