Getting Your Rental House in Order for Tax Year 2014
By Don Driftmier, CPA
The end of the year is fast approaching and another dreaded income tax filing is not so far in the distant future. There are a number of record keeping and related activities that should be accomplished before December 31, 2014 regarding rental real estate, both residential and commercial. This article is not designed to be all inclusive as individual circumstances differ widely. Any questions that this article may raise should be discussed with your CPA or other tax advisor.
Some records should be kept current and filed in an easily accessible place. These would include the original closing escrow documents for the purchase, sometimes called a settlement document. Also included would be refinancing escrow documents if any and the invoices for any “capital” improvements such as landscaping, swimming pool, etc. These are documents you will need when the time comes to sell the real estate. The deed would also be a part of this package of documents. These documents are special and not to be filed with the annual income and expense documents that back up your tax return numbers.
I like to see separate bank accounts and accounting records for each rental real estate venue. A current and well written lease/rental agreement should also be on file for each venue. This document will outline the terms of the agreement and the responsibilities of the leasee and lessor. Since this tends to be a binding legal document, a visit with your attorney might be worthwhile.
If you use a real estate management company to “take care” of your rental real estate day to day operations, the management agreement/contract should be fully understood to see where liability falls. Good record keeping is imperative regardless of who is doing the day to day operations. Invoices should be kept for all expenses.
If the rental real estate is part of an association, the covenants of that association dealing with rentals must be addressed. The owners and not the renters will most likely be the responsible party for association issues.
There are a number of tax issues involved with both residential and commercial real estate investments owned by individual tax payers as opposed to partnerships and Limited Liability Companies (LLC’s). Limitations on real estate losses, passive vs active activity, tax-free exchanges to name a few of the issues surrounding rental real estate that will be addressed by your CPA or other tax advisor. ~
Don Driftmier, CPA, is the CFO of Noble House Entertainment Pictures, LLC, a motion picture production company based in Ontario, CA. He is also an appointee of the U.S. Secretary of Commerce to the California Inland Empire District Council. He is a community leader and active in several organizations including the Ontario Rotary Club.
