Quickbooks 2019 End Of Life
Carlos Beirise
Like most tax questions, it depends.... The most common life insurance programs are the $50K and under employee life (where the employee names the beneficiary) offered as a non-taxable fringe benefit. If the program allows over $50K in death benefit, the cost of the excess is considered a taxable fringe to employee. In general this excess coverage can be at a very attractive rate, so it is common for senior executives to have the taxable cost of this excess benefit added to their W-2 and shown in compensation.
Another very common use of insurance is key man or officers life. It is the IRS position that if this cost is historically deducted by the company, the proceeds are fully taxable to the beneficiary (whether paid to the company or to an individual.) Typically as the beneficiary would like the proceeds tax free (to for example hire a replacement executive or pay off a bank loan) the company elects to not deduct this small premium amount annually in order to have the full proceeds in the event of death. These amounts are Schedule M items.
Other life insurance related situations can be even more complicated from a tax point of view, including the treatment of split dollar insurance and the use of life insurance paid for by the company but held outside the company for cross purchase agreements (to for example avoid increasing the value of the company by the amount of proceeds at the death of the insured.) For these, you (or your client) should consult with the insurance professional that set up the arrangement as proper tax treatment is generally required to make these work as planned.
Under rules that go into effect for tax year 2018, you can also deduct more expenses under a section of the tax law known as Section 179. Under the new rules, you can do this with up to $1 million in new property used for certain allowable business uses, including providing lodging to your tenants. This property can include appliances, such as refrigerators, and furniture, such as beds.
For rental property assets, they are normally capitalized and depreciated over time. Appliances would be depreciated over 5 years. However, for qualifying assets that cost less than $5000 you have the choice to either capitalize and depreciate, or to just deduct the full cost as an expense in the year of purchase. Appliances that cost less than $5000 qualify to be expensed.
When working through the rental expenses section, the very, very, very *VERY* last screen of that section is for miscellaneous expenses not covered in other expense categories. Just enter your appliances there and the cost, click Continue and press on.
Overall, depreciating the appliances over 5 years will have minimal affect on your tax liability (if any at all due to every increasing carry forward losses) so I suggest you just expense them. That way, the expense is carried forward and unlike depreciation does not have to be recaptured when you sell the property in the future.
Remember, this appliance was damaged due to tenant abuse. The tenant claims it is a depreciable asset and since it exceeded the allotted 5 years depreciation by the IRS, then I should have it changed anyway.
But wouldn't the IRS object if the replacement took place, not for normal wear and tear rather due to premature interruption of the useful life expectancy of the appliance? In other words, why not make the tenant pay for the replacement instead of me buying a depreciable replacement appliance and depreciate it over 5 years? Wouldnt the IRS frown upon me if I did not try to recover the cost of the abused appliance first? Thanks,
It is my understanding that for a "plain vanilla" rental property one is unlikely to qualify as a business and therefore would not be able to claim de minimis election. That is because one is unlikely to spend 250hrs/y actively managing single-family rental where tenants tend to stay 1y+.
That being said, why would it be ok to claim appliances under 2.5K as an expense (unless you qualify for a safe harbor rule that most of the vanilla rental would not)? Am I missing some other provision of the tax code?
"Overall, depreciating the appliances over 5 years will have minimal affect on your tax liability (if any at all due to ever increasing carry forward losses) so I suggest you just expense them. That way, the expense is carried forward and unlike depreciation does not have to be recaptured when you sell the property in the future."
I do prefer to claim as an expense vs depreciating over 5y as it will help to offset the profit (depreciation on my property is not enough to offset the rent). However, I still struggle to establish why would I be eligible to claim a fridge as an expence. If it was under the safe harbor, I would have to first qualify to the safe harbor by dedicating 250h/y of being directly involved. That is really a lot of time when it comes to single-family rental.
Amortizable Closing Costs
When you take out a mortgage, the IRS lets you write off your interest, but you will have to amortize your closing costs over the life of the loan. Closing costs like prepaid interest, loan origination fees and even "junk" charges like appraisal fees or documentation fees all get divided over the life of your loan. If you took out a 25-year amortization loan with a 10-year term and you spent $16,000 to do it, you would divide the $16,000 by 10 to find your yearly amortization allowance. You can then write off $1,600 per year during the life of your loan
Basically, any expenses incurred to secure the loan (not the property) are amortized and deducted over the life of the loan. This would be expenses paid for your credit check pull, appraisal fees *if* required by the bank in order to secure the loan (and it was), as well as what the bank calls "origination fees" which may or may not include "points" (which is nothing more than pre-paid interest on the loan.)
Whereas expenses incurred in acquistion of the property are capitalized and depreciated 27.5 years (for rental property). These would be expenses such as title transfer fees, title insurance and things like documentary stamps if your county still does that.
Date of Conversion - If this was your primary residence before, then this date is the day AFTER you moved out.
In Service Date - This is the date a renter "could" have moved in. Usually, this date is the day you put the FOR RENT sign in the front yard.
Number of days Rented - the day count for this starts from the first day a renter "could" have moved in. That should be your "in service" date if you were asked for that. Vacant periods between renters count also PROVIDED you did not live in the house for one single day during said period of vacancy.
Days of Personal Use - This number will be a big fat ZERO. Read the screen. It's asking for the number of days you lived in the property AFTER you converted it to a rental. I seriously doubt (though it is possible) that you lived in the house (or space, if renting a part of your home) as your primary residence or 2nd home, after you converted it to a rental.
Business Use Percentage. 100%. I'll put that in words so there's no doubt I didn't make a typo here. One Hundred Percent. After you converted this property or space to rental use, it was one hundred percent business use. What you used it for prior to the date of conversion doesn't count.
Property improvements are expenses you incur that add value to the property. Expenses for this are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.
2) The improvement must add "real" value to the property. In other words, when the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.
Those expenses incurred to maintain the rental property and it's assets in the useable condition the property and/or asset was designed and intended for. Routine cleaning and maintenance expenses are only deductible if they are incurred while the property is classified as a rental. Cleaning and maintenance expenses incurred in the process of preparing the property for rent are not deductible.
Those expenses incurred to return the property or it's assets to the same useable condition they were in, prior to the event that caused the property or asset to be unusable. Repair expenses incurred are only deductible if incurred while the property is classified as a rental. Repair costs incurred in the process of preparing the property for rent are not deductible.
Where are the appraisal and other fees entered? In the New Rental Property Worksheet, under the Increases to Basis section part 2 - Settlement fees or closing costs, there's no entry that seems to apply for this kind of fees. Should the fees for the appraisal, credit report, etc. be added together and specified in the Other increases to basis box?
I am making improvements (replace doors and windows) after the property was put into rental business (while being rented). Do I start depreciating the particular improvement from the moment it is put in service, not when the rental business started? Does each improvement have its own depreciation schedule as they are finished at different times?
What if I do an expensive remodel somewhere in the middle of 27.5 period, does it start its own 27.5 depreciation cycle that would go past the main building's depreciation period or all improvements just add to the cost basis, and all depreciation ends at the end of the 27.5 period of the main building? What if I keep using the property for rent past its 27.5 depreciation period?
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