All told I think we spent about 10 hours over two days working on it. I have a 1.5 foot stack of paperwork that I pulled out of storage containing closing docs, previous years' taxes....stuff we might need...thankfully we didn't have to dig too deep into the pile! We have used TurboTax since 2015. Prior to that, back to the first year we rented out a home, we went to a CPA but we were being charged between $500 and $600/year. We decided to do it ourselves with software and it has worked out well for about $250/year. The division of labor is this - I manage the forms online and do the data entry while Husband finds the numbers in our GnuCash system. We work together to try to ensure we don't forget anything. I keep track of all paper documents & he keeps track of the electronic.
Here is what I have learned. If you have a house that you want to sell, but you can't get your money out of it - RENT IT for a couple of years and then sell it as a rental! If you do, even if that means you have to rent for a couple of years, you can write off your loss! If you sell your primary residence and you lose money nobody cares and you don't get to write off your loss - the laws are written by landlords, not homeowners; capitalists, not workers. I didn't fully appreciate the value of writing off a loss until I did it.
Get this: Let's say I paid $100,000 for a rental. From the first year in service I depreciate the house - which means that a small percentage of the value is subtracted each year from the rent I earned. I also get to deduct repairs, property management fees, legal fees, advertising...every year and that further reduces the income I must pay taxes on each year. A couple of years later let's say I have to replace a roof for $5,000 and flooring for $5,000. From the moment those improvements are completed I get to start depreciating them as well. But let's say in year 5, I want to sell the house and I can only sell it for $75,000. I would determine the "basis" of the house as $110,000 (the cost of the house plus all improvements) minus the depreciation I have already taken over the years (let's say that totals $2,000) to determine the value of the home as $108,000. Then I would take the sales price ($75,000) and subtract the cost of selling the home (realtor fees/title co...let's say totaling $5000) to determine the net sale price of $70,000. The difference between $108,000 and $70,000 is the amount I get to write off (-$38,000) and that comes off of my taxable income which reduces my tax burden significantly. There may be a limit to the losses you can claim in one year, but if so, I bet you can claim the losses over multiple years. We didn't run into that, but I am not a CPA...I'm just trying to give a simple example to illustrate what a sweet deal landlords get. That is the boat we sailed in this year - needless to say we are getting a nice refund.
Despite the fact that I benefit from these tax laws, I think they are unfair. They are designed to make the rich richer & to reward those who have money. Policies like these are dangerous for society because they perpetuate the two tiered society of haves and have-nots. Working people can't get ahead and they are kept poor and struggling because of these types of policies.
I want to really stress this point, with a primary residence you don't get to depreciate improvements nor do you get to write off losses. Homeowners can sink endless amounts of money into their homes, all while paying mortgage interest to a bank and lose significant sums of cash if they have to sell for a loss. The flip side of this is that homeowners don't pay capital gains on profits while landlords do...but I would rather be faced with the prospect of paying capital gains then not being able to write off a loss.
We still own one rental home which we have been renting since around 2010. We have replaced a roof, installed tile throughout, replaced windows and a number of smaller improvements. We held for a number of reasons...but I don't think I could have mentally dealt with selling a fourth house, three was enough stress! Also, we have great tenants - as long as they want to live there we will probably rent to them. Though I have felt a great relief in having less property management responsibilities since September (when the two rentals closed), I see more clearly now how landlords are protected in a more significant way than homeowners/ It makes me question whether we should invest more heavily in the rental business in the future. Certainly our money invested in our remaining rental yields a greater return than the money we have in CDs. The bottom line for us is that our taxes in 2018 are going to be a breeze!
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