It’s been a chaotic year for real estate activities. Rental rates skyrocketed along with the housing market and your clients may have been impacted. If they aren’t already involved with rental real estate activities, they may be considering it now.
Webinar instructor Amy Wall, EA, introduces Schedule E to help you understand different types of rentals and walks you through the preparation for Schedule E for each type in a recent webinar.
Below, you’ll find a few of the top questions from the webinar and their accompanying answers. If you choose to attend the on-demand version of this webinar, you’ll have access to the full recording and the entire list of Q&As.
Q: Assuming the activity has not risen to the level of a trade or business, which would then allow a QBI deduction, I believe the Form 1099 reporting rules do not apply since §6041(h) was repealed. Granted, the IRS did not update their instructions for this change.
A: Correct, §6041(h) was repealed in 2011; however, the Schedule E instructions have not been updated. If the taxpayer is taking the stance that a rental activity rises to the level of a trade or business, the Form 1099-MISC or Form 1099-NEC would be required.
Q: Can we continue to depreciate the property in a year with no income?
A: For rental properties, if the property is available for rent, you can continue to take depreciation and expenses for the property.
Q: What if the taxpayer purchased assets that are each under $2,500 but in total exceed 2% rental building basis? Can you still use the de minimis safe harbor and expense those costs?
A: Yes, it appears you can. They are separate provisions in the regulations. With that said, when you are determining the basis of the property under the small taxpayer safe harbor, you have to factor in costs that were expensed under the de minimis safe harbor.
Q: If you make it, does the de minimis election apply to every item under $2,500, or can you pick and choose?
A: You must consistently apply it to all amounts paid during the election year [Reg §1.162-3(f)].
To learn more about Schedule E, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to join our completely free 30-day trial, visit natptax.com/explore.
About National Association of Tax ProfessionalsThe National Association of Tax Professionals (NATP) is the largest association dedicated to equipping tax professionals with the resources, connections and education they need to provide the highest level of service to their clients. NATP is comprised of over 23,000 leading tax professionals who believe in a superior standard of ethics and exemplify professional excellence. Members rely on NATP to deliver professional connections, content expertise and advocacy that provides them with the support they need to best serve their clients. The organization welcomes all tax professionals in their quest to continually meet the needs of the public, no matter where they are in their careers.
The NATP headquarters is located in Appleton, WI. To learn more, visit www.natptax.com.
Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing.