How to create the paper trail for rental real estate deductions

by | Oct 6, 2018 | Blog, Guides | 0 comments

Taxpayer’s trying their hand at real estate investment often miss a few key points with how they approach their time spend on real estate matters. Whether your real estate investment is for appreciation (or speculation), flipping, or renting, the ability to prove what you did and when during the year is often an afterthought. DO NOT be this person. Let’s start from the top.

GMP CPA How to create the paper trail for rental real estate deductions 5 accoutant

Do you spend more than 50% of your time in real property trade or businesses and does that time spent exceed 750 hours per year? If you are a real estate agent or real property manager, that should be no effort. If you do not have either of those two jobs, then how do you prove the time spent is at least half your working time and more than 750 hours?

The IRS states in the regulations, “Contemporaneous daily time reports, logs, or similar documents are not required if the extent of such participation may be established by other reasonable means.” Which translates roughly to “a time log will work if there is no other way to prove time spent”. Google helped translate that word salad.

When taxpayers have taken the IRS to court (not always a good idea for self-representation) and provided witness and personal testimony the courts have found for the IRS. Not to repeat this again, but a simple time log would have spared the courts and the taxpayers. A simplistic example (left), is often enough to have the IRS move on or accept your real estate participation, as long as it is kept up with as you go. Trying to create a log after the fact is an easy way for the IRS to prove you did not meet the standards.

There are some additional finer points to keeping the time log and what items to log that are deductible and what items should be logged and are not deductible, which can be specific to each taxpayer. Those nuances are worth an email to GMP CPA or a phone call so we can make sure your real estate deductions are protected. Contact us before you develop any more bad documentation habits!

MORE ARTICLES FROM OUR BLOG

Tax Cuts & Jobs Act Nov Update

Tax Cuts & Jobs Act Nov UpdateNovember 2018IRS Says TCJA Allows Client and Prospect Business Meal Deductions In Notice 2018-76, the IRS states that client and prospect business meals continue as tax deductions under the Tax Cuts and Jobs Act. This is very good...

2019 Payroll w/Gusto

Payroll is often a source of pain for business owners. S-Corp owners know that they have to have it, although most still find it a bit…mysterious. The big payroll companies offer ready-built platforms that offer a ton of features, although they are often difficult to...

Xero and electronic payment processing options (PayPal, Stripe, IntegraPay, Square, Plooto)

Xero and electronic payment processing optionsFor clients that will use invoices as the primary method of billing, there are quite a few options for that are better than “the check is in the mail” (spoiler alert, it never is). All of the payment processors below will...

The most wonderful time of the year…

The holiday’s are in full swing, which we know is “official” because the Halloween themed items are sitting side-by-side with Christmas related stuff kitsch decorations in almost every store. During this most wonderful time of the year, GMP CPA looks forward to as...

Test your knowledge about NC Sales Tax for HVAC Services

If your business involves repairs, maintenance, or installation services related to vehicles then this quiz will test your knowledge of current NC sales tax law. MORE ARTICLES FROM OUR BLOG
Tina Simmons
Tina Simmons
13:38 17 May 19
This team is dedicated to their clients and committed to understanding your business and sharing their knowledge to help you succeed. I love working with these folks, they take the worry and uncertainty out of accounting and taxes!read more
Bravo4 Autowerks
Bravo4 Autowerks
12:55 08 May 19
Gary and his team have been fantastic for me and my business. They respond well to all my questions, are very helpful and of course keep my financials in order. Highly recommended.read more
Queen City Newborn Care
Queen City Newborn Care
15:57 02 Apr 19
I was drowning before I met Justin. He totally transformed how I run my small business and has gotten me organized in ways I didn't even know were possible. I am so grateful for his advice and suggestions! This company is worth every penny.read more
Dennis Bloomberg
Dennis Bloomberg
16:01 26 Mar 19
Unfortunately, I found GMP when my mother passed. She had a trust set up and I had no experience with one. I received excellent advice prior to filing taxes, that allow for the transfer of assets with little tax implication. The tax process was simple for me, Justin took over once he had details and cleared up all question from filing our taxes. Thank you for a job well done!read more
Natalie Knight
Natalie Knight
15:35 21 Nov 18
Prusiensky CPA is up to date on technology. They handcraft a platform that works best for your company's accounting services. We really appreciate how hands on and quick their team is when replaying to any type of correspondence. Simply put, they care and want your company to succeed.read more
Ashlyn Lelej
Ashlyn Lelej
14:39 21 Nov 18
I highly recommend Justin at Prusiensky, CPA for all of your accounting and tax needs. I've been a client for over two years, and have been consistently impressed with their dedication to helping my business grow and be financially successful. His advice is invaluable. Thank you!read more
Bobby Nguyen
Bobby Nguyen
22:23 20 Nov 18
My partner and I started our very first small business last year. Justin has been a blessing to us. Being new at all of this, we didn’t understand much of how business taxes work. Justin explained and answer all of questions that we have. He took care of everything for us throughout the year and have made life so much easier for us. I couldn’t have asked for a better CPA. Highly recommended!read more
Next Reviews

CATEGORIES

Drive Time Increases Odds of Deducting Rental Property Losses
Forming a Management Entity