Primary residence converted to a rental property & tax implications

Question

In June this past year, we moved out of our condo in the Seattle, WA area that we initially purchased in December 2005 for $240K. We were able to purchase a new home and decided that we'd rent out our condo. We created a LLC with the state of WA and we are renting our condo through the LLC.

I'm not an accountant and do plan on seeking an accountants help with my 2011 taxes, but I was hoping to get some information to prepare myself for the upcoming meetings. The biggest question that I have is how to handle the depreciation. How would this play out? The county estimates our land to be worth $21K and our improvements to be worth $182K.

This is a fairly basic business and I'm pretty sure that my breakout of income and expenses below is accurate.

Income

• Rental Income

Expenses

• Mortgage Interest
• Property Taxes
• Home Owner's Dues
• Property Insurance
• General Maintenance
• Depreciation

NOTE: PRINCIPAL PAYMENTS ARE NOT EXPENSES

Answer 1

You will need to look at the 27.5 year depreciation table from the IRS. It tells you how you will be able to write off the first year. It depends on which month you had the unit ready to rent. Note that that it might be a different month from when you moved, or when the first tenant moved in.

Your list is pretty good. You can also claim some travel expenses or mileage related to the unit. Also keep track of any other expenses such as switching the water bill to the new renter, or postage.

If you use Turbo tax, not the least expensive version, it can be a big help to get started and to remember how much to depreciate each year.

Answer 2

Schedule E is the form you'll use. It lists nearly all deductions you can take for a rental. TurboTax Deluxe will handle it and it includes State Filing.