Rentals separating capital gains expenses from ordinary expenses
I currently have my rental set up as a customer with the tenant set up as a job. I have some expenses (repairs, etc.) that I need to list as a capital gains expense to depreciate and some expenses (insurance, cleaning service, etc) that I need to list separately to take the deduction for that year. How do I separate the two?
Re: Rentals separating capital gains expenses from ordinary expenses
Hi. Let me help.
On your balance sheet you should have some fixed assets. Typically I see rental properties: Land
Building Accumulated Depreciation
When you have a repair "expenditure" that needs to be depreciated, you need to create a new fixed asset account. Say it's a new roof. Now you have:
Land Building Roof Accumulated Depreciation
the "expense" comes through depreciation, which you usually enter at year end when you (or your tax pro) completes the tax return. That's depreciation expense, and a corresponding credit to accumulated depreciation.
It's VERY important to track this stuff, because when you sell the property (or it gets demolished in a hurricane - I had three clients with these in 2017) you will need to accurately know both your original cost (basis) and accum depr to calculate any gain or loss.