GIMME SHELTER

 
Being a landlord is not for everyone. But it can provide an income stream that is not subject to self-employment tax (social security and medicare). It can create a tax "negative" while still generating a cash "positive".
 
For instance:

• If you receive rent for January 2017 in December 2016, you report the rent as income on your 2016 tax return.

• If you receive a deposit for first and last month's rent, it's taxed as rental income in the year it's received even if the “last month” occurs years later!

• If your tenant paints the unit in lieu of rent, you must report the value of the goods or services as income on your return in the year the tenant provides the service.

• A security deposit is not included as income when received if the plan is to refund it to the tenant when the lease ends.

Some deductible expenses include:

• Advertising

• Cleaning and maintenance

• Commissions paid to realtors

• Condo fees

• Insurance premiums

• Mortgage interest

• Property taxes

• Management fees

• Pest control

• Repairs

• Supplies

• Trash removal fees

• Utilities

• Yard maintenance, snow removal

You can even deduct the cost of travel to your rental property, if the purpose of the trip is to check on or perform work on the property. If you travel by car, you must keep a mileage log as proof. 

It is imperative to keep good records. In order to deduct an expense, you must be able to document it with logs, and receipts. So hold on to all receipts, cancelled checks, credit card and bank statements.

Can improvements and repairs be deducted?

Okay, this is where things get confusing. According to the IRS, there is a big difference between and an improvement and a repair. The cost of improvements generally get depreciated over time using IRS depreciation tables rather than deducted in the year the expense was generated. However, repairs can be written off in the year the repair is made. 

Improvements “materially add to the value of the property” or substantially “prolong the life of the property”.  

Examples include:

• Additions

• A totally new roof

• Modernizing a kitchen or bathroom.

• Installing insulation or new windows.

Repairs are basically seen as keeping the property in good working condition. 

Examples include:

• Painting

• Repairing appliances (vs. buying a new one)

• Fixing leaks (vs. a plumbing “do-over”)

• Replacing a broken window (vs. replacing a number of windows for upgrading purposes)

• Patching part of a roof (vs. replacing the whole roof)

Calculating depreciation can get pretty confusing. But to give you an idea of how it works consider that depreciation is a deduction you take over an IRS specified number of years. The IRS determines the “life” of the property and different kinds of property have varying “useful life years”.

To figure out the depreciation on your rental property:

• Determine your cost or tax basis for the property (in some cases this sounds easier than it is). 

• Calculate depreciation for each property type based on methods, when the property is put into use and the number of years the IRS deems as “useful life” for each asset.

 Examples of property class lives and recovery periods per the IRS:

• The building itself minus the value of the ground it sits on for residential rental real estate = 27 1/2 years.

• Nonresidential rental real estate = 39 years

• A fence or shrubs = 15 years.

• Furniture, carpets and appliances = 5 years

• Office furniture = 7 years

• Additions, improvements, renovations for residential rental real estate = 27 1/2 years.

 In general your cost basis in the property is the amount that you paid for the property (acquisition cost plus any expenses). But if you are converting your primary home to a rental, your tax basis in the property is the lower of  (1) your acquisition cost or; (2) the fair market value at the time you convert the property from personal to rental use.

Yeah, I warned you it can get cumbersome.And of course there are a lot of special rules for figuring out your basis if you inherited the property or took ownership in a like-kind exchange.

For more information check out  IRS Publication 551: Basis of Assets  and IRS Topic 414: Rental Income and Expenses.

Here We Go Again

That was fast!  Here we are again, packing away holiday decorations; promising ourselves we will go the gym, and the unabashed using of kitschy names for what used to just be a snow storm or blizzard (think “snowmageddon” and “snowpocalypse”).  

It is also the beginning of tax season and time to start hunting and collecting. It is important for you to understand in most cases money received is counted as income unless tax law provides for an exception.

When is money generally not counted as income?  A gift is not included as part of your gross income nor is money you borrow. However, if you don't pay the borrowed money back and the lender "forgives" the debt, then the "forgiveness of debt" is included as part of your gross income. Although like everything that has to do with taxes, there are also exceptions regarding forgiveness of debt.

What happened last year that may change your taxes?

• Birth of a child
• Marriage or Divorce
• Purchase or sale of personal residence

The thing to keep in mind about the first two items is that as far as the tax authorities are concerned – whatever your status was on December 31st, is your status for the whole year. So those of you that had a baby on the last day of the year, you have a new deduction for the entire year!

Most of you probably know that mortgage interest continues to be a tax deductible item. And so are your real estate taxes. If you bought a home, make sure to give your accountant a copy of your HUD closing statement as there are some small deductible items that only show on that form.

A gain on the sale of your primary residence is a bit more involved and depending on your specific circumstances, it could be excluded. To exclude the gain on the sale of your home from income, you must own and occupy the property as your principal residence for two of the five years immediately before the sale. However, the ownership and occupancy need not be concurrent. The law permits a maximum gain exclusion of $250,000 ($500,000 for married taxpayers). This is known as the 121 Exclusion aptly named after the Internal Revenue Code Section 121. And even if you qualify for a full exclusion, while the gain may not be taxable, it is still has to be reported.

Be aware that the gain on any portion of a residential property you didn’t use for residential purposes is taxable.  Any post-May 6, 1997 depreciation allowable on the property triggers recognition of otherwise excluded gain.

You can typically only claim the 121 Exclusion once every two years. However, a taxpayer who disposes of more than one residence within two years due to a job change or health problem, may qualify for a reduced exclusion amount.

Documents you need to prepare your return:

• W-2
• 1099-INT (bank, credit union and other interest you receive)
• 1099-DIV (for dividends from your non-retirement investment accounts)
• 1099-G (money received from a government agency such as your prior year state refund)
• 1099-MISC (for services you provided to clients, rents received or royalties etc)
• W-2G (gambling wins)
• 1099-B (broker reporting statements for the sales of securities)
• 1098-INT (mortgage interest you paid to a lender)
• 1099-R (pension, 401(k), IRA or annuity distributions)
• 1099-SSA (Social Security benefits received)

 Keeping good tax records helps your accountant make sure you get all of the deductions to which you are entitled. It also makes her like you – a lot!  Make it easier on both of you by coming up with a system and sticking to it. It doesn’t have to be fancy and can be as simple as stashing items in a folder as you receive them and then doing a little adding up at the end so you present her with category totals and have all the documents you received in one place. Not only will good record keeping save you time and reduce your stress during tax season,   if the IRS ever had any questions, good records could save the day!

 

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LIVING WELL CORNER

As someone who struggled most of my adult life with weight issues, this is a topic about which I am passionate.

Getting healthier is not about a diet or short term plan, it is about changing how you live. Trying to do it all at once is a sure way to fail. Not trying to do it at all is also a sure way to fail. Because change does not happen overnight, it is important to realize that the adjustments you make are life adjustments, not a stop-start effort. It begins with a commitment to yourself and learning how to quiet the negative head chatter.

For me, the first step was realizing I possessed the ability to change my life. I am not weak willed, hopeless, a victim of genetics, or powerless.  All of these thoughts are negative and self-defeating and while somehow it seemed acceptable to talk about myself this way, I would never talk about YOU using these very same words. 

I am motivated, able, and an addict. I am addicted to junk food, sugar, and simple carbohydrates. I describe myself as having the palate of an eight year old boy. I did not get to unhealthy weight by eating salad, grilled chicken and vegetables. But believe me, that is not all I eat now and over a number of years, I have lost and kept off 70 pounds.  

Don’t Do It Alone - If I Can You Can

While ultimately we are all responsible for our own success, it is important to get support from the people around you. You will need to be brave, direct and brutally honest with yourself and others. I found it hard to say out loud, all the things I had been silent about for so long. If you want to succeed, it is crucial to build a healthy support system and ask for help. Tell your friends, family and even coworkers, what your goal is and how you plan to reach it. Let them know what you cannot eat and in my case, what foods I cannot be around. 

Their support is important.  But be aware that not everyone will be on board because they do not understand or perhaps have their own food issues. I had many people tell me, “you can have just one”, or “start tomorrow”, or “you are thin, this won’t hurt”. But it will hurt, because once I start, I cannot stop. Would you tell someone who stopped drinking “you can have just one”? 

I have also found that there are many free apps and websites that help keep me accountable. They force me to be mindful of what I eat, or how many steps I take daily. Some of the apps reward you for keeping track!   

One of my favorites is Wellcoin, whose tagline is “It pays to live healthy”.  Earn wellcoins for making healthy choices and then cash them in for free gym classes, workout gear, and healthy food (to name a few). You can connect with their community to give and get the support and encouragement you need to make your healthy changes a new way of living. 

Follow this link and sign up now – it’s free!

http://wellcoin.com/AccountNew/SignUp?signUpCode=yankeegirl

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