CPA for Rental Property Owners in Los Angeles

Situations We Handle

Reporting each property. Rental income and expenses are reported on Schedule E, with a separate column for each property; an owner with more than three properties attaches as many Schedules E as needed. Deductible expenses include taxes, mortgage interest, repairs, insurance, management fees, commissions and depreciation.

Depreciation. A residential rental building is generally depreciated over 27.5 years under MACRS. Land cannot be depreciated, so the purchase price is divided between land and building. Improvements are depreciated as separate items from the date they are placed in service.

Buying a rental. Certain fees and expenses paid at purchase become part of the property's cost basis. We review the closing statement to separate basis items from costs that are deducted, and set up the depreciation schedule for the building and any improvements.

Passive activity rules. A rental activity is generally passive even when the owner is closely involved, unless the owner qualifies as a real estate professional. An owner who actively participates can deduct up to $25,000 of rental loss against other income; the allowance is reduced once modified adjusted gross income passes $100,000 and is generally unavailable at $150,000. Lower limits apply to married people who file separately. Disallowed losses carry over to the next year.

Selling a rental. The part of the gain attributable to depreciation on the building, unrecaptured section 1250 gain, is taxed at a maximum federal rate of 25 percent. Suspended passive losses are generally allowed in full in the year the owner disposes of the entire interest in a fully taxable sale to an unrelated buyer. We estimate the tax before the sale so the owner knows what to set aside.