Tax Question: How best to split up rent/mortgage/repairs?

March 6, 2014 3:44 AM

TaxFilter: Partner and I own multi-family home. How best to split up $$$ from rents, repair costs, mortgage, etc for taxes this year?

My partner and I own a 3-apartment house. We live in one of the apartments. I'm about to do the taxes for both of us for the first time and would love any advice as to how to divvy up the past year.

Some info:
- Both of our names are on the title and the mortgage.
- We've spent about $20k on repairs and $5k on improvements, both to our apartment and to the house
- My partner made a lot more money than I did in 2013 (about $115k vs $35k)
- We made about $10k on rent for 2013
- We had a bunch of work done to our apartment and moved into a different apartment while this work was being done.
- We are not married (domestic partnered)

Based on what I've read so far, my partner should list the mortgage on his taxes and I should put all of the rents / business expenses on mine. Does this sound mostly correct?

Any advice or suggestions of additional websites or books that are helpful in this situation would be greatly appreciated! Please ask questions if I've left anything out.

Thanks!

posted by amicamentis to Work & Money (11 answers total)

35/115 works out to a nice even 30-70 split.

Sharing expenses on that basis may not result in the lowest tax bill, but it is the most fair and equitable way for a couple to share costs. Income you split 50-50.

That's not really a tax answer; it's a relationship answer but one that should be taken into your tax calculations.
posted by three blind mice at 4:00 AM on March 6, 2014

OP, your taxes are going to be complex--passive activity losses, deemed tax partnership questions, etc. I wouldn't dream of doing these myself, if I were you. Get an accountant.
posted by Admiral Haddock at 4:07 AM on March 6, 2014 [3 favorites]

I believe that the correct answer is that you should split expenses according to who paid and income according to ownership %.

The Admiral is right, though: there's some complicated stuff afoot here that would likely make a CPA worthwhile.
posted by jpe at 4:56 AM on March 6, 2014

Yes, an accountant is the only good answer here. Not H&R Block, an actual CPA. And start looking for someone now, they are very busy already. If you know anyone else who owns a multi-family, they may be able to recommend someone.

Accountants cost money, but especially in a complicated situation like yours, they will save you a lot more in time, money, stress, and potential audit costs.
posted by pie ninja at 5:22 AM on March 6, 2014 [1 favorite]

Thirding the notion that it will be well worth the money to work with a CPA to get you on the right footing.

My husband and I are experienced landlords. Our first rental property was (is) a single family home. The first year we did our taxes after the house had been put into service, we hired a friend who is an accountant to guide us through doing taxes. There are several things that you establish the first year that you put your property into service that will stay with you over the course of your finances--basis, depreciation, probably more, it's been a while since I did the taxes! Suffice to say, it's at this point that you make decisions about how to deal with taxes that will follow you for a long time.

This year we bought another rental property. This time it's a two-family home, and we spent significant money on renovations before moving in and renting. Despite the fact that we are experienced landlords, and my heroic husband had been doing our taxes on his own quite well since that first transition to landlordhood, there was NO WAY we were going to try to disentangle exactly the kinds of issues you describe above without guidance.

We're living in a different state now that also has significantly different tax structure than our home state before, which adds another wrinkle.

The guy we got connected to charges a pretty steep price but he was totally on the ball when we met with him and I am CERTAIN he will be worth every penny.

Get a CPA.
posted by Sublimity at 5:24 AM on March 6, 2014 [2 favorites]

You are in CPA territory here. This is not going to be a simple thing, and a CPA can show you a LOT more ways of saving on your taxes.
posted by Ruthless Bunny at 5:36 AM on March 6, 2014 [1 favorite]

I also have a rental property, and my CPA is a godsend. Go forth and acquire one.
posted by thomas j wise at 6:15 AM on March 6, 2014 [1 favorite]

Nth'ing CPA. I only own one single-family rental and there is NO WAY I can do my taxes on my own anymore. The depreciation calculations are pretty daunting. My CPA charges me $350 to do my taxes and it saves me WAYYYYY more than that in my ability to get a larger refund and not get penalties and audits because things are done right.

Seriously. Last year I tried doing my taxes on my own and ended up having to pay my CPA to do them over and file the amended return because I botched it. Just save yourself the trouble and hire someone who knows how to do this.
posted by rabbitrabbit at 9:48 AM on March 6, 2014

This isn't actually that complicated, despite what others are saying. TaxACT will walk you through it, but you would gain significant peace of mind by hiring a (tax) CPA for your first time out. If your circumstances and the law don't significantly change, you can always file yourself next year using some software and their previous advice.

My SO and a friend of hers are in a very similar situation and they have never bothered to hire a CPA. Of course, they are both CPAs, but are not tax accountants. They have little trouble, but their arrangement has thus far been relatively uncomplicated, having done little in the way of renovation.
posted by wierdo at 10:11 AM on March 6, 2014

wierdo, can you tell us if TaxACT is significantly more sophisticated than TurboTax when it comes to rental properties? Because TurboTax will definitely NOT walk you through it, that's how I managed to mess up my taxes last year.
posted by rabbitrabbit at 10:24 AM on March 6, 2014

I wouldn't call it the most seamless process in the world, but it did ask and gave the opportunity to enter the relevant information and provided at least some alerts to remind me to look for expenses I would have otherwise forgotten about. In the last couple of years I haven't been the one to sit down at the computer and type it all in, so I can't say how it's evolved since 2011.

My SO and her friend do have pretty much the simplest case of owning a rental house that could be, though. They each pay 50/50 and take 50/50. I could see other arrangements making it more difficult, hence the advice to pay a CPA the first time around.

With any method of tax preparation, it pays one to sit down and get a general feeling for the relevant rules (the IRS website has a vast amount of reading material that covers a lot of situations) and come up with a ballpark estimate of what your taxes ought to be and work to understand any difference from what the program (or your tax preparer) comes up with. As in any profession, some tax preparers, CPA or no, just aren't that good.
posted by wierdo at 11:37 AM on March 6, 2014