I am buying a multi-family house as an investment property. I'll be buying it using an LLC that I use for investment properties. No part of the house will be my personal residence.

Much of my income is from work that I do as a contractor. The income is reported to me on 1099-MISCs. I file a Schedule C for this income. This work is performed by me personally as a sole proprietorship; I don't do it as part of my investment property LLC.

I'm wondering if there is an argument to be made for deducting the cost of the investment property purchase as a business expense in order to reduce the taxable 1099 income on my tax return. The work I do as a contractor is not directly related to the investment property; the investment property is a separate stream of income.

Still, in a general sense, managing the property and my work as a contractor are each part of my self-employment enterprise.

My accountant says I can't deduct the house purchase because it would be considered a separate business. But he's a pretty conservative guy when it comes to IRS rules, so I'm wondering what others' perspectives on the issues are, and which specific tax statues may or may not make such a deduction legitimate.

  • 3
    "My accountant says..." If you don't trust your accountant, get a different professional opinion, don't simply try and prove him/her wrong; your accountant is, to some degree, legally liable for having the right opinion. The internet is not. – Grade 'Eh' Bacon Nov 28 '17 at 18:44

You can't deduct the cost of the property, but you can deduct depreciation expense for the property (and any capital improvements you make) over the next 27.5 years (simplified version is cost of property less land value divided by 27.5). You may be able to accelerate depreciation of certain items in the house (cost segregation), things like carpets/drapes/blinds, lighting, appliances can be depreciated over shorter periods, but you'll want someone experienced in cost segregation to divide up the property by category, and unless you have a large number of units in the building it could cost more to perform the cost-segregation analysis than it saves you.

You can also claim any other related expenses, utilities, repairs (not your time), like you would for your contract work. These offset rental income and can legitimately result in a loss for this rental business. The losses of your rental business would offset gains from your other business. They are separate, but they still both contribute to your taxable income for the year.

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