February 25, 2025 • 24 mins
Welcome to Episode 124 of the Teaching Tax Flow podcast, where hosts John Tripolsky and Chris Picciurro wrap up their informative series on tax schedules with a deep dive into Schedule E. This episode is sponsored by Integrated Investment Group, inviting accredited investors to explore new financial opportunities. They kick off the discussion by examining the nuances of Schedule E, a pivotal form for reporting rental income and expenses on personal tax returns. Chris emphasizes why treating your tax return as a verb, not a noun, is crucial for legal and ethical tax reduction through proactive planning.
In this episode, the hosts breakdown Schedule E line by line, highlighting its significance for rental property owners and those receiving royalties. Chris offers valuable insights into determining rental days, categorizing property types, and ensuring proper expense allocation. By understanding the intricate details of Schedule E, taxpayers can avoid pitfalls like missing depreciation or inaccurately reporting property classifications, which may lead to audits. This comprehensive guide not only aims to minimize tax liabilities but also helps in strategizing for long-term financial success.
Key Takeaways:
- Understand the importance of Schedule E for reporting rental income, royalties, and related expenses accurately on personal tax returns.
- Properly categorize each rental property individually to adhere to IRS guidelines and avoid triggering audits.
- Ensure accurate record-keeping and reporting for expenses such as insurance, mortgage interest, and depreciation to maximize tax benefits.
- Learn about the implications of fair market rental days and personal use days when calculating and reporting rental income.
- Explore the role of Form 8582 in managing passive activity losses and its relationship with Schedule E.
Notable Quotes:
- "Your tax return is a verb and not a noun." - Chris Picciurro
- "Ultimately your tax return is just an accumulation of all the transactions that occurred for the previous year." - Chris Picciurro
- "If the IRS is asking for a specific line item, it means that's a common expense for a certain type of property." - Chris Picciurro
- "Most commonly missed deduction? Depreciation. If you've missed it, it's fixable." - Chris Picciurro
- "Make sure you properly categorize the type of property in the rental days." - Chris Picciurro
Resources:
Dive into the full episode to unravel the complexities of Schedule E and enhance your tax strategy toolkit. Stay tuned to the Teaching Tax Flow podcast for more insightful discussions and expert advice
Episode Sponsor:
Integrated Investment Group
- (00:00) - Introduction and Sponsor Message
- (01:16) - Overview of Episode: Schedule E
- (02:21) - Why We Don't Believe in Tax Season
- (03:17) - Introduction to Schedule E
- (05:05) - Reporting Properties on Schedule E
- (06:48) - Overview of Property Types and Fair Market Rental Days
- (09:14) - Expense Categories and Common Mistakes
- (11:28) - Importance of Keeping Accurate Records
- (13:31) - Final Tips and Pro Tips on Schedule E
- (22:14) - Conclusion and Call to Action
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
John Tripolsky (00:03):
Hey, everyone. Welcome back to the teaching tax
flow podcast episode 124 todayas we wrap up our three part a
series and look at schedule e.But before we do that, as
always, let's take a briefmoment and thank our episode
sponsor.
Ad Read (00:19):
Are you leaving money on the table? Are you an
accredited investor seeking newand exciting investment
opportunities? Look no furtherthan Integrated Investment
Group, your trusted partner infinancial success. At IIG, the
focus is on delivering exclusiveinvestment options tailored to
your unique needs and goals.Contact them today and let their
(00:41):
expert team guide you towardyour financial aspirations.
Wondering if you qualify as anaccredited investor? Visit
teachingtaxflow.combackslashiigto find out and take the first
step towards a brighterfinancial future. Integrated
Investment Group, your path tofinancial success begins here.
Securities offered through CabinSecurities. Member FINRA SIPC.
John Tripolsky (01:06):
Alright, everybody. We are back here
again. Again, as you heard inthe intro, the last part of our
a series. So part three ofthree, we're looking at Schedule
e. Yeah.
That has a little rhyme to it.Disregard that. But, Chris
Pacquero, welcome back to yourown show, sir. How we doing?
Chris Picciurro (01:21):
I'm wonderful. How are you doing today?
John Tripolsky (01:24):
I'm doing good, man. I feel like my voice is is
is lowering. Like, I'm losing myvoice already, probably because
we've been talking about allthis stuff. It is the quote
unquote, I'm gonna say it, sodon't punch me, tax season. It's
it's in the it's in this it'slike deer hunting, I feel like.
Right? Like, there's a start anda stop date a little bit, and
why I say I like to say that topoke the bear with Chris a
(01:46):
little bit because we don'tbelieve in tax season here at
Teaching Tax Flow. And, Chris,why do we even tell tell the
audience why we don't believe inthat that term.
Chris Picciurro (01:55):
Well, quite frankly, the your tax return is
a verb and not a noun. So taxyes. We have tax compliance,
heavy tax compliance time, whichthe majority of people, partake
in tax compliance during themonths of February, March, and
April. But, ultimately, your taxreturn is just an accumulation
of all the transactions thatoccurred for the previous year,
(02:18):
and it's very reactive. So ifyou want to legally and
ethically change the tax you payin your lifetime, you have to do
the proper tax planning andstrategy.
Many people use real estate toas a tax advantage investment,
and that's why it's part threeof our a series, schedule e. We
talked about schedule a, whichis your item which are your
itemized deductions, schedule cfor self employed, and then
(02:42):
schedule e. This is where we wereport, all of your rental
activity. Now schedule e isattached to a form ten forty,
which is a personal tax return.If you own property in a
partnership or in an scorporation, typically you don't
wanna own rental properties inan s corp, but in a partnership,
(03:02):
you're gonna file a form similarto schedule e, but it's not
gonna be schedule e.
Schedule e is specifically forpeople that are reporting rental
income and deductions andattaching it to a personal tax
return that could be anindividual filer or someone
filing jointly with a spouse.
John Tripolsky (03:17):
And this may this may not be the, the sexiest
of forms, I'd imagine. Right?There's some other ones that are
a little bit more interesting,but, nevertheless, it is very
important. Right?
Chris Picciurro (03:29):
Absolutely. I mean, this is this is required
if you have a rental property,and it is often, screwed up for
lack of a better term. And we'regonna talk through what goes on
schedule e and what are some ofthe very important numbers that
go on there, what are some ofthe nonfinancial information
that's required, and then acouple tidbits, tips, from the
(03:52):
pros about things that often getmissed. So let's talk about it.
Schedule I'm looking at this askind of a one zero one course on
Schedule e, but Schedule and andmight I backtrack?
Schedule e is you know, it'scalled a supplemental income and
loss schedule. This is where youput your rental properties, but
you're also reporting royalties.You know, if you own maybe oil
(04:17):
and gas or or you're gettingpaid a royalty for a passive
investment, it's not just rentalproperties. It could be other
type of, let's say, passiveincome, but the vast, vast
majority of schedule e is goingto be, the reporting of rental
property. So, yeah, it getsattached to your personal tax
return.
One of the things that you haveto keep in mind, and we're gonna
(04:38):
put a link to in the podcastnotes of of when you look at the
schedule, is that someone couldhave several schedule e's
attached to their personalreturn. In fact, John, I've
we've seen clients in ourprivate CPA practice that have
had over 200 rental properties,owned. And, and remember, if
you're a single member LLC, thatgets reported on schedule e.
(04:58):
You're a disregarded entity.
John Tripolsky (05:00):
And can these forms be e filed as well too, or
do we have to kill a small treeto mail all these?
Chris Picciurro (05:05):
No. No trees are killed in the preparation of
schedule e. They are e filed.And so with schedule e, yeah,
you'll you'll report threeproperties on each schedule e,
and you could have severalschedule e's attached to a
personal tax return. But it'simportant for people to remember
that probably the number onetakeaway before we start diving
into what goes on it, eachproperty is reported separately
(05:28):
on a schedule e.
I can't tell you how many timesI've seen, somebody have 10
properties and either themselvesor their tax professional was
lazy and they or didn't knowwhat they were doing and they
just slapped it onto one, youknow, onto one column.
Ultimately, what schedule e is,it's a profit and loss statement
for your property. There aresome balance sheet items,
(05:49):
meaning there's some assets thatwe're gonna talk about, but it's
a profit and loss statement foryour properties, and it's very
important for each property tobe reported separately due to
passive activity loss rules, andand, you know, different
properties could be havedifferent use. You could have a
commercial property. You couldhave a short term rental.
You could have a long termrental. You, you know, you could
have a you could have land. Youknow? You could have land that
(06:12):
you're just renting out. Sothere's a lot of things that
could be put on schedule e.
So first thing, remember,schedule e, you're gonna each
property is gonna have aseparate line. Now let's say you
have a duplex. Then I would putthat on that duplex would just
be one property
John Tripolsky (06:31):
because it's all attached. Let's say you own
Chris Picciurro (06:31):
an apartment building. That'd be and there's
eight units in the apartmentbuilding. That's still you don't
have to report each unitseparately. That'd be one, you
know, schedule e. But let's sayyou own eight condominiums in a
condominium in a in a, let'ssay, vacation rental area all in
the same complex, and there's200 condominiums there and you
own eight of them, eachcondominium would be a separate,
(06:55):
profit and loss statement.
John Tripolsky (06:56):
Gotcha. So, basically, you're lumping it
together. Like, as youmentioned, it's more the the
overall property footprint, ifyou will, not number of doors.
Like, that's commonly used inthe real estate investment
Chris Picciurro (07:06):
world. That that's a good way to put it.
Absolutely. So Perfect. Yep.
So with Schedule e, we'restarting off at the top. It's an
interesting question that justcame about in the last few years
with IRS added to Schedule e,and it's simply saying, did you
make any payments that require aten ninety nine to be issued
from you to somebody else? Andit's a yes or no question. You
(07:28):
know, so that that'sinteresting. Right?
And we have some other contenton when you issue a ten ninety
nine, but don't ignore thatquestion. What I don't like
about schedule e is there'snowhere on schedule e for you to
report if the property's ownedby a single member LLC or a
disregarded entity. Just insidertip, I think that's gonna change
in the future. I think at somepoint schedule e will get
(07:50):
modified. But the first step isyou're gonna the the scheduling
is gonna say, hey.
What's going on? Do you do youowe are you supposed to issue
any ten ninety nines? Thenthey're gonna it's gonna ask for
the property address. Then it'sgonna ask what type of property.
This is something very, veryimportant that I see a lot of
errors on.
It has remember I said schedulee is really a profit and loss
(08:10):
statement? But type of propertyis extremely important. There
are different codes, based onwhat type of property that you
have. So that code could be asingle family home, that could
be land, that could be avacation rental, that could be a
multifamily, that could be acommercial property. And
different types of property havedifferent types of rules when
(08:31):
you can, maybe deduct thelosses, may or different
depreciation schedules.
So commercial property isdepreciated over thirty nine
years, where residential'stwenty seven and a half years.
So these are things that couldeasily trigger an audit if you
put the wrong type of propertyin the type of property area.
John Tripolsky (08:55):
Interesting. And what what we'll do too, I think
you may have mentioned a littlebit earlier, we'll put in the
show notes here a direct link tothe form itself or Schedule e
form ten forty. And we urge youif you haven't yet or, you know,
you're watching this orlistening to it, just click on
that form and kinda follow alongwith us too because, Chris,
that's actually the first time,and I feel like I've pulled this
form up and looked at it. I'veactually missed that section
(09:16):
that you mentioned in therethat's maybe I was looking at an
older form that, you know, theyhad asked. But, yeah, this is
interesting.
It's Right. It's notinteresting, but also
interesting at the same time.
Chris Picciurro (09:28):
I mean, it could be one of seven different
types of property or the other.So if if you have a property
that doesn't fit in any of thesedescriptions, then you're gonna
put it on there under the other,category. So, yeah, so you're
gonna fill out your type ofproperty, and then it's gonna
ask fair market value rentaldays versus personal use rental
days. That's really easy. Ingeneral, the fair market value
days is is gonna be the days itwas available for rent.
(09:51):
Does it look you know? So in inwhat this question is very
important when it comes tovacation rentals. And if you're
using it for more than fourteendays personally, then there
there could be some tricky,things to navigate through,
we'll say. But definitely don'tignore that fair market rental
days and personal use days. Theother thing to consider is that
(10:14):
a lot of times lenders arelooking at this number.
Right? So let's say you have ashort term rental property and
you rented it out a hundreddays. You purchased it halfway
through last year, and you'retrying to get financing, and
you, the the underwriter mightmight look at that and say,
well, if they rent it out for ahundred days, here's their
(10:35):
revenue, but they only owned itowned it owned it half the year.
So for a full year, we wouldprobably double that. You know?
So there's a different again, bethe for the purposes of this
podcast, this is, you know,schedule e basics. Use the
accurate amount of fair marketrental days and the personal use
days. And then one other thing,if you are a, if you are married
(10:59):
and you live in a communityproperty state, your rental
activity might be a QJV, whichis called a qualified joint
venture. And what that allowsyou to do is that allows you to
report the property in aconsolidated fashion, so both
spouses, instead of creating twoseparate separate entities. So
just be be aware of again, wehaven't even jumped into how to
(11:20):
report your revenue anddeductions yet.
These are all things that if notdone properly, can inadvertently
trigger an IRS examination.
John Tripolsky (11:28):
So and really with this, Chris, I know the the
question comes up all the time.It's like, how can I avoid an
audit? Right? Well, here's oneof them. Right?
Like, don't muck up you don'tmuck up your form, frankly.
Spend the time, Go through it.And then also, you know, what
I'm taking from this one, youknow, the the trend being even,
you know, in the couple minutesthat we've been discussing this
is just pay attention to whatthey're asking and almost don't
(11:50):
overthink it. Right? Like,they're they're asking you very
specifically what they want, andyou gotta love the yes or no
answers because I feel like theIRS doesn't do that very often.
They usually don't give you avery binary answer or a
question.
Chris Picciurro (12:03):
If the yeah. And this is what you need to
think about. If the IRS andwe're gonna talk let's talk
about the income and then theexpenses. If the IRS is asking
for a specific line item, itmeans that's a common expense
for a certain type of property.So and schedule e, they're
asking, what's your rentreceived?
What's your royalties received?Right? Royalties are gonna be
from things like, you know, youcould purchase, an oil and gas
(12:25):
well. You could purchase I mean,quite frankly, if, John, let's
say you wrote a hit song and Ibought the rights to that song,
I'm buying that royalty fromyou. And then rents received is
those those are the two incomeitems on schedule e.
But then on schedule e and we'reon page one of schedule e or,
then it then it lists severaldifferent expenses. Now it
doesn't mean you have to haveall of these expenses, but these
(12:47):
are the common expenses for arental property. Advertising,
auto and travel, cleaning,commissions, insurance, you
know, I'm gonna stop, butmanagement fees, you know,
repair supplies, utilities. Soif you have something that
doesn't fit one of thosecategories, that's okay. You're
gonna add it and report it onkind of that others, what we
call line 19, catchall.
(13:09):
But, typically, you're gonna seethat those are the common
expenses for a rental property.And the reason that those are
out there is that I'm sure theIRS is taking that information
and trying to figure out, youknow, what is there what
percentage of revenue is that,and does it seem like what we
(13:30):
would call an anomaly, or doesit seem like it might trigger
something to look at it? So forinstance, if you report that
you're a commercial propertythat's been rented out for the
entire year and you have a hugelarge 20% of your revenues
management fee, that seems high.But if you're reporting you're a
short term rental property andyou're paying a 20% management
(13:51):
fee, that seems normal. Right?
Because that's typically thethat would be a common
management fee for someone thatmanages a short term rental
property for you. So those arethe things utilities. Utilities
for a short term rental propertyare probably gonna be a lot
higher, as a percentage of, youknow, than maybe a long term
rental. Because if I if you'rerenting my house on a long term
(14:14):
basis, you're you're probablygetting the lot of the utilities
in the renter's name. They mightbe there for several years
versus someone that'stemporarily there.
So those are the things you'vegotta look at. You know, looking
at repairs, like, we talk aboutthe de minimis safe harbor
election, but if you have asignificant amount of repairs,
should those be capitalized anddepreciated over a period of
(14:35):
years or should they beexpensed? So just be aware of
what you're doing when you'relooking at the expenses. One
more pro tip. If you have aSchedule e, pull out your tax
return.
Hopefully, it's in a PDF at thispoint. Look at insurance. Look
at mortgage interest. I can'ttell you how many times people
forget to deduct insurance ormortgage interest. And a lot of
(14:59):
times, it's it's missedaccidentally.
Let's say you own a rentalproperty with a that has an
escrow account, very common.Right? And the mortgage interest
statement you get from the bankat the end of the year, credit
union, etcetera, says, hey. Ipaid x amount of mortgage
interest. Part of that paymentis gonna be your insurance and
property taxes.
You might easily miss that. So alot of times there's expenses
(15:22):
that are missed, and the finalthing I see missed a lot, oh,
good gracious, depreciation.You're required to take a
depreciation deduction. Now wetalk a lot about cost
segregation studies andaccelerating depreciation. There
are you know, as you know, John,I'm very fortunate to teach, you
know, what the NationalAssociation of Tax
Professionals, our tax seasonupdates course, which is a
(15:42):
sixteen hour course that Imyself and a lot of people way
more talented and intelligentthan me teach all over the
country.
I've had the opportunity toteach between three and four
hundred other tax professionalsthis fall and winter. My point
is on this is that we had anhour and twenty minute segment
in this course just on misseddepreciation and how to fix it.
(16:06):
So if you find on your taxreturn you don't have a
deduction in the depreciationexpense line, You're not the
only one. Right? But there's away to fix it.
There's ways to fix it thatcould actually reduce your
taxable income significantly.
John Tripolsky (16:20):
And I feel like, Chris, it's almost a little bit
serendipitous that we're havingthis conversation now because,
roughly, by the time we releasedthis a few days before, I had a
great, kind of a casual, call ita fireside chat, if you will,
with Mike Reed from your team.So and why bring that up, right,
is we we talked to tried toanswer the question of, you
know, are you my accountant?Kind of that infamous question,
(16:43):
but what came up a few times inthat was just the the weight it
carries on having your books inorder. Right? So even though
this might be very scary to somepeople, like, how do I know how
much I spent in advertising?
How much do I know I spent inutilities? The good thing is is
keeping your books in line asmuch as you can for the year, it
gives you the answers. You'rebasically just moving numbers
(17:05):
over. Right?
Chris Picciurro (17:07):
Absolute. I mean, yes. You you you having
accurate records is veryimportant. So I I would say if
you have a rental property, at aminimum, maybe set up a separate
bank account that you cancapture your income and
deductions through that are easyto export those transactions to
some type of software or even,you know, you summer I mean, you
summarize them at the end of theyear. So yeah.
Absolutely. Other thing toconsider, couple real quick
(17:30):
tidbits on this, you know, youhave to make sure that so by
default, I don't wanna go downtoo many too many rabbit holes
here, but by default, rentalincome is considered passive.
Now there are exceptions tothat, which for real estate
professional status and forshort term rental loophole.
Definitely check out theTeaching Tax Slow YouTube
channel for that information.But if you have a loss from a
(17:51):
rental property and it's deemedto be a passive loss and you
can't deduct that loss in thecurrent year, which is extremely
common, that gets reported on aform eighty five eighty two.
A form eighty five eighty twolists all your passive activity
losses, and that also flows fromthe schedule e. My point is
this. One thing I see missed allthe time, we might have even
(18:13):
talked about this on one of theprevious episodes, is that let's
say, John, you're preparing yourown return or you go to another
new tax professional. You have arental property, and you give
them you give them all theinformation needed to prepare
the return. You always need tolook back at the previous year
return to the c if, one, wherethe depreciation schedule is,
meaning your you know, how muchcost basis of the property is
(18:35):
and depreciation reduction.
But two, are there passiveactivity losses that have to get
entered into the new software?They're so easy to miss, and
they're very, very valuable,especially when you sell that
property or sell anotherproperty. So I would say eighty
five eighty two is definitelylinked to Schedule e. They might
not be brother and sister, butthey're going to the same,
holiday party or family reunion.
John Tripolsky (18:56):
Oh, they're that's a good way to put it,
man. And and I'm thinking, youknow, again, me not being the
tax guy here, I look at this asalmost if you do say we'll just
take example. You say you haveone rental property. Right?
Sure.
You might know how well it'sdoing. You know, at any given
time, you kinda have a gutfeeling. But this really is like
your annual report card. Right?Like, you had mentioned on
there, sometimes you forgetabout mortgage insure or, your
(19:20):
mortgage interest or yourinsurance.
Frankly, I mean, it kinda goeswithout saying, you might look
at this even if it's notprepared by you, might be
prepared by your taxprofessional. You might get
this. It's pretty important thatyou look at it because you might
say, holy cow. Like, I'm payingway too much in this, and you go
out and look at other options.So at kinda what I'm trying to
do is add a little life to avery static perspective form.
(19:43):
Right? Using it for a goodthing.
Chris Picciurro (19:45):
This is yeah. I'm gonna leave you with a
couple, yeah, a couple actionitems, pro tips, on Schedule e.
So Schedule e, let me leave youwith this. For on page two of
Schedule e, that's where you'regonna report any k ones. We have
a whole separate episode.
I think k ones for dummies,basics for partnership and s
corp returns. Any k ones you'regetting from a partnership or an
(20:05):
s corporation are gonna getreported on page two of schedule
e. Let's focus on page one. Whatare your takeaways from here?
One, most commonly misseddeduction, depreciation.
If you've missed it, it'sfixable. Go talk to a tax
professional. Two, make sure youbreak down the categories of
your expenses. I can't tell youhow many times, John, in my over
(20:28):
well, over twenty year careersomeone said, well, I got a
rental property. Yes, sir.
Can we what are the income anddeductions? Well, I make a
hundred bucks a month. Oh, yeah.That's not what we put on our
return. My mortgage is $1,100,and I and I rent them 1,200 of
rent.
Okay. That's great, but we needto break down to that. You put
that on a tax return, and Ipretty much, I'm not gonna
(20:49):
promise anything, but yourchances of getting examined are
extreme much higher. So break itdown, make it easy for your tax
professional to help you mix andthen the final takeaway is make
sure you properly categorize thetype of property in the rental
days. And, oh, one more bonusthat I already talked about, be
very mindful of form eighty fiveeighty two and how that plays a
(21:10):
role.
As always, shameless plug, ifyou've got rental property,
definitely jump in our defeatingtaxes private Facebook group,
defeatingtaxes.com. Ask anyquestion, John. We run something
almost every Friday where we weask members of the, of the
Facebook group. Ask any questionthat you want, and we reply
(21:30):
within one business day. We now,you know, it's funny, John.
We now we have a ton of taxprofessionals in that group that
always love to jump in and helpout the taxpayers.
John Tripolsky (21:39):
Absolutely. And even that, Chris, I mean, I
don't have mentioned this a fewepisodes ago given the time
frame here. If anybody's lookingfor somebody to prepare these
returns that actually knows whatthey're talking about, I
shouldn't say that in a bad way.It's not that a lot don't, but
are very familiar with thisform. What goes into a
strategies behind it?
You guys offer that through yourprivate practice and other
resources and whatnot. So andthat's just at 2025.tax. So two
(22:03):
zero, the numerical, two zerotwo five dot tax and has that
form on it. So you get ashameless plug. I get a
shameless plug, sir.
We both get a point on thescoreboard.
Chris Picciurro (22:14):
We'll take it. We need all the points we can
get as we enter March Madnesstime as our segue. And for
everyone that listened,honestly, thank you so much for
jumping into the ace, thesethree weeks of the of the ace
content. You know, again, likeyou said, John, this isn't the
sexiest stuff. We've had somereally cool, content as far as
tax strategy.
(22:34):
We've got very excited aboutwhat's coming up. But the ace,
schedule a, schedule c, schedulee, that that is the nuts and
bolts of foundation of of taxpreparation and tax planning. If
you'd like what you're hearing,again, we can't thank you enough
for people that have subscribedto the YouTube channel and given
us a five star review because itreally that's the fuel to our
(22:55):
fire, and it's it allows us tokeep cranking out great content
and and coming up with moretopics based on what our
community, the tax planningcommunity, tells us to do.
John Tripolsky (23:06):
Absolutely. And as always, we'll see everybody
back here again on the TeachingTax Flow podcast next week. So
it's gonna be a different day,different day, roughly about the
same time, but different topic.Thanks, Chris, again, as always.
And one more thing before wewrap up here.
We wanna know what you guyswanna hear. Right? So we
constantly get these topicsthrough our defeating taxes,
(23:28):
through that, Facebook group. Weget messages from people. If
there's anything you want tohear us discuss, sometimes we
don't have the best answers.
That's what I love going toChris for and say, hey, we got a
great topic. Go find a greatguest. And that's really what,
you know, Chris, as youmentioned, that that's the fuel
of our fire. Send us thoseideas. We'd love it.
We have so many of them. We justwanna make sure that what we're
(23:51):
doing is exactly what you guyswanna hear. Without going into
exactly what it is, we areextremely proud of just the
absolute sheer volume of peoplethat have downloaded this
podcast going on, like, twoyears, almost now a little bit
over. So keep them coming. Welove it.
And, again, we'll see you nextweek.
Disclaimer (24:12):
The content provided is for educational purposes
only. We encourage you to seekpersonalized investment advice
from your financialprofessional. For all tax and
legal advice, please consultyour CPA or attorney. Investment
advisory services are offeredthrough Cabin Advisors, a
registered investment adviser.
Securities are offered throughCabin Securities, a registered
broker dealer. The content ofthis podcast does not constitute
(24:32):
an offer of securities.Offerings can only be made
through an offering memorandum,and you should carefully examine
the risk factors and otherinformation contained in the
memorandum.
Hey, everyone. Welcome back to the teaching tax
flow podcast episode 124 todayas we wrap up our three part a
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John Tripolsky (01:06):
Alright, everybody. We are back here
again. Again, as you heard inthe intro, the last part of our
a series. So part three ofthree, we're looking at Schedule
e. Yeah.
That has a little rhyme to it.Disregard that. But, Chris
Pacquero, welcome back to yourown show, sir. How we doing?
Chris Picciurro (01:21):
I'm wonderful. How are you doing today?
John Tripolsky (01:24):
I'm doing good, man. I feel like my voice is is
is lowering. Like, I'm losing myvoice already, probably because
we've been talking about allthis stuff. It is the quote
unquote, I'm gonna say it, sodon't punch me, tax season. It's
it's in the it's in this it'slike deer hunting, I feel like.
Right? Like, there's a start anda stop date a little bit, and
why I say I like to say that topoke the bear with Chris a
(01:46):
little bit because we don'tbelieve in tax season here at
Teaching Tax Flow. And, Chris,why do we even tell tell the
audience why we don't believe inthat that term.
Chris Picciurro (01:55):
Well, quite frankly, the your tax return is
a verb and not a noun. So taxyes. We have tax compliance,
heavy tax compliance time, whichthe majority of people, partake
in tax compliance during themonths of February, March, and
April. But, ultimately, your taxreturn is just an accumulation
of all the transactions thatoccurred for the previous year,
(02:18):
and it's very reactive. So ifyou want to legally and
ethically change the tax you payin your lifetime, you have to do
the proper tax planning andstrategy.
Many people use real estate toas a tax advantage investment,
and that's why it's part threeof our a series, schedule e. We
talked about schedule a, whichis your item which are your
itemized deductions, schedule cfor self employed, and then
(02:42):
schedule e. This is where we wereport, all of your rental
activity. Now schedule e isattached to a form ten forty,
which is a personal tax return.If you own property in a
partnership or in an scorporation, typically you don't
wanna own rental properties inan s corp, but in a partnership,
(03:02):
you're gonna file a form similarto schedule e, but it's not
gonna be schedule e.
Schedule e is specifically forpeople that are reporting rental
income and deductions andattaching it to a personal tax
return that could be anindividual filer or someone
filing jointly with a spouse.
John Tripolsky (03:17):
And this may this may not be the, the sexiest
of forms, I'd imagine. Right?There's some other ones that are
a little bit more interesting,but, nevertheless, it is very
important. Right?
Chris Picciurro (03:29):
Absolutely. I mean, this is this is required
if you have a rental property,and it is often, screwed up for
lack of a better term. And we'regonna talk through what goes on
schedule e and what are some ofthe very important numbers that
go on there, what are some ofthe nonfinancial information
that's required, and then acouple tidbits, tips, from the
(03:52):
pros about things that often getmissed. So let's talk about it.
Schedule I'm looking at this askind of a one zero one course on
Schedule e, but Schedule and andmight I backtrack?
Schedule e is you know, it'scalled a supplemental income and
loss schedule. This is where youput your rental properties, but
you're also reporting royalties.You know, if you own maybe oil
(04:17):
and gas or or you're gettingpaid a royalty for a passive
investment, it's not just rentalproperties. It could be other
type of, let's say, passiveincome, but the vast, vast
majority of schedule e is goingto be, the reporting of rental
property. So, yeah, it getsattached to your personal tax
return.
One of the things that you haveto keep in mind, and we're gonna
(04:38):
put a link to in the podcastnotes of of when you look at the
schedule, is that someone couldhave several schedule e's
attached to their personalreturn. In fact, John, I've
we've seen clients in ourprivate CPA practice that have
had over 200 rental properties,owned. And, and remember, if
you're a single member LLC, thatgets reported on schedule e.
(04:58):
You're a disregarded entity.
John Tripolsky (05:00):
And can these forms be e filed as well too, or
do we have to kill a small treeto mail all these?
Chris Picciurro (05:05):
No. No trees are killed in the preparation of
schedule e. They are e filed.And so with schedule e, yeah,
you'll you'll report threeproperties on each schedule e,
and you could have severalschedule e's attached to a
personal tax return. But it'simportant for people to remember
that probably the number onetakeaway before we start diving
into what goes on it, eachproperty is reported separately
(05:28):
on a schedule e.
I can't tell you how many timesI've seen, somebody have 10
properties and either themselvesor their tax professional was
lazy and they or didn't knowwhat they were doing and they
just slapped it onto one, youknow, onto one column.
Ultimately, what schedule e is,it's a profit and loss statement
for your property. There aresome balance sheet items,
(05:49):
meaning there's some assets thatwe're gonna talk about, but it's
a profit and loss statement foryour properties, and it's very
important for each property tobe reported separately due to
passive activity loss rules, andand, you know, different
properties could be havedifferent use. You could have a
commercial property. You couldhave a short term rental.
You could have a long termrental. You, you know, you could
have a you could have land. Youknow? You could have land that
(06:12):
you're just renting out. Sothere's a lot of things that
could be put on schedule e.
So first thing, remember,schedule e, you're gonna each
property is gonna have aseparate line. Now let's say you
have a duplex. Then I would putthat on that duplex would just
be one property
John Tripolsky (06:31):
because it's all attached. Let's say you own
Chris Picciurro (06:31):
an apartment building. That'd be and there's
eight units in the apartmentbuilding. That's still you don't
have to report each unitseparately. That'd be one, you
know, schedule e. But let's sayyou own eight condominiums in a
condominium in a in a, let'ssay, vacation rental area all in
the same complex, and there's200 condominiums there and you
own eight of them, eachcondominium would be a separate,
(06:55):
profit and loss statement.
John Tripolsky (06:56):
Gotcha. So, basically, you're lumping it
together. Like, as youmentioned, it's more the the
overall property footprint, ifyou will, not number of doors.
Like, that's commonly used inthe real estate investment
Chris Picciurro (07:06):
world. That that's a good way to put it.
Absolutely. So Perfect. Yep.
So with Schedule e, we'restarting off at the top. It's an
interesting question that justcame about in the last few years
with IRS added to Schedule e,and it's simply saying, did you
make any payments that require aten ninety nine to be issued
from you to somebody else? Andit's a yes or no question. You
(07:28):
know, so that that'sinteresting. Right?
And we have some other contenton when you issue a ten ninety
nine, but don't ignore thatquestion. What I don't like
about schedule e is there'snowhere on schedule e for you to
report if the property's ownedby a single member LLC or a
disregarded entity. Just insidertip, I think that's gonna change
in the future. I think at somepoint schedule e will get
(07:50):
modified. But the first step isyou're gonna the the scheduling
is gonna say, hey.
What's going on? Do you do youowe are you supposed to issue
any ten ninety nines? Thenthey're gonna it's gonna ask for
the property address. Then it'sgonna ask what type of property.
This is something very, veryimportant that I see a lot of
errors on.
It has remember I said schedulee is really a profit and loss
(08:10):
statement? But type of propertyis extremely important. There
are different codes, based onwhat type of property that you
have. So that code could be asingle family home, that could
be land, that could be avacation rental, that could be a
multifamily, that could be acommercial property. And
different types of property havedifferent types of rules when
(08:31):
you can, maybe deduct thelosses, may or different
depreciation schedules.
So commercial property isdepreciated over thirty nine
years, where residential'stwenty seven and a half years.
So these are things that couldeasily trigger an audit if you
put the wrong type of propertyin the type of property area.
John Tripolsky (08:55):
Interesting. And what what we'll do too, I think
you may have mentioned a littlebit earlier, we'll put in the
show notes here a direct link tothe form itself or Schedule e
form ten forty. And we urge youif you haven't yet or, you know,
you're watching this orlistening to it, just click on
that form and kinda follow alongwith us too because, Chris,
that's actually the first time,and I feel like I've pulled this
form up and looked at it. I'veactually missed that section
(09:16):
that you mentioned in therethat's maybe I was looking at an
older form that, you know, theyhad asked. But, yeah, this is
interesting.
It's Right. It's notinteresting, but also
interesting at the same time.
Chris Picciurro (09:28):
I mean, it could be one of seven different
types of property or the other.So if if you have a property
that doesn't fit in any of thesedescriptions, then you're gonna
put it on there under the other,category. So, yeah, so you're
gonna fill out your type ofproperty, and then it's gonna
ask fair market value rentaldays versus personal use rental
days. That's really easy. Ingeneral, the fair market value
days is is gonna be the days itwas available for rent.
(09:51):
Does it look you know? So in inwhat this question is very
important when it comes tovacation rentals. And if you're
using it for more than fourteendays personally, then there
there could be some tricky,things to navigate through,
we'll say. But definitely don'tignore that fair market rental
days and personal use days. Theother thing to consider is that
(10:14):
a lot of times lenders arelooking at this number.
Right? So let's say you have ashort term rental property and
you rented it out a hundreddays. You purchased it halfway
through last year, and you'retrying to get financing, and
you, the the underwriter mightmight look at that and say,
well, if they rent it out for ahundred days, here's their
(10:35):
revenue, but they only owned itowned it owned it half the year.
So for a full year, we wouldprobably double that. You know?
So there's a different again, bethe for the purposes of this
podcast, this is, you know,schedule e basics. Use the
accurate amount of fair marketrental days and the personal use
days. And then one other thing,if you are a, if you are married
(10:59):
and you live in a communityproperty state, your rental
activity might be a QJV, whichis called a qualified joint
venture. And what that allowsyou to do is that allows you to
report the property in aconsolidated fashion, so both
spouses, instead of creating twoseparate separate entities. So
just be be aware of again, wehaven't even jumped into how to
(11:20):
report your revenue anddeductions yet.
These are all things that if notdone properly, can inadvertently
trigger an IRS examination.
John Tripolsky (11:28):
So and really with this, Chris, I know the the
question comes up all the time.It's like, how can I avoid an
audit? Right? Well, here's oneof them. Right?
Like, don't muck up you don'tmuck up your form, frankly.
Spend the time, Go through it.And then also, you know, what
I'm taking from this one, youknow, the the trend being even,
you know, in the couple minutesthat we've been discussing this
is just pay attention to whatthey're asking and almost don't
(11:50):
overthink it. Right? Like,they're they're asking you very
specifically what they want, andyou gotta love the yes or no
answers because I feel like theIRS doesn't do that very often.
They usually don't give you avery binary answer or a
question.
Chris Picciurro (12:03):
If the yeah. And this is what you need to
think about. If the IRS andwe're gonna talk let's talk
about the income and then theexpenses. If the IRS is asking
for a specific line item, itmeans that's a common expense
for a certain type of property.So and schedule e, they're
asking, what's your rentreceived?
What's your royalties received?Right? Royalties are gonna be
from things like, you know, youcould purchase, an oil and gas
(12:25):
well. You could purchase I mean,quite frankly, if, John, let's
say you wrote a hit song and Ibought the rights to that song,
I'm buying that royalty fromyou. And then rents received is
those those are the two incomeitems on schedule e.
But then on schedule e and we'reon page one of schedule e or,
then it then it lists severaldifferent expenses. Now it
doesn't mean you have to haveall of these expenses, but these
(12:47):
are the common expenses for arental property. Advertising,
auto and travel, cleaning,commissions, insurance, you
know, I'm gonna stop, butmanagement fees, you know,
repair supplies, utilities. Soif you have something that
doesn't fit one of thosecategories, that's okay. You're
gonna add it and report it onkind of that others, what we
call line 19, catchall.
(13:09):
But, typically, you're gonna seethat those are the common
expenses for a rental property.And the reason that those are
out there is that I'm sure theIRS is taking that information
and trying to figure out, youknow, what is there what
percentage of revenue is that,and does it seem like what we
(13:30):
would call an anomaly, or doesit seem like it might trigger
something to look at it? So forinstance, if you report that
you're a commercial propertythat's been rented out for the
entire year and you have a hugelarge 20% of your revenues
management fee, that seems high.But if you're reporting you're a
short term rental property andyou're paying a 20% management
(13:51):
fee, that seems normal. Right?
Because that's typically thethat would be a common
management fee for someone thatmanages a short term rental
property for you. So those arethe things utilities. Utilities
for a short term rental propertyare probably gonna be a lot
higher, as a percentage of, youknow, than maybe a long term
rental. Because if I if you'rerenting my house on a long term
(14:14):
basis, you're you're probablygetting the lot of the utilities
in the renter's name. They mightbe there for several years
versus someone that'stemporarily there.
So those are the things you'vegotta look at. You know, looking
at repairs, like, we talk aboutthe de minimis safe harbor
election, but if you have asignificant amount of repairs,
should those be capitalized anddepreciated over a period of
(14:35):
years or should they beexpensed? So just be aware of
what you're doing when you'relooking at the expenses. One
more pro tip. If you have aSchedule e, pull out your tax
return.
Hopefully, it's in a PDF at thispoint. Look at insurance. Look
at mortgage interest. I can'ttell you how many times people
forget to deduct insurance ormortgage interest. And a lot of
(14:59):
times, it's it's missedaccidentally.
Let's say you own a rentalproperty with a that has an
escrow account, very common.Right? And the mortgage interest
statement you get from the bankat the end of the year, credit
union, etcetera, says, hey. Ipaid x amount of mortgage
interest. Part of that paymentis gonna be your insurance and
property taxes.
You might easily miss that. So alot of times there's expenses
(15:22):
that are missed, and the finalthing I see missed a lot, oh,
good gracious, depreciation.You're required to take a
depreciation deduction. Now wetalk a lot about cost
segregation studies andaccelerating depreciation. There
are you know, as you know, John,I'm very fortunate to teach, you
know, what the NationalAssociation of Tax
Professionals, our tax seasonupdates course, which is a
(15:42):
sixteen hour course that Imyself and a lot of people way
more talented and intelligentthan me teach all over the
country.
I've had the opportunity toteach between three and four
hundred other tax professionalsthis fall and winter. My point
is on this is that we had anhour and twenty minute segment
in this course just on misseddepreciation and how to fix it.
(16:06):
So if you find on your taxreturn you don't have a
deduction in the depreciationexpense line, You're not the
only one. Right? But there's away to fix it.
There's ways to fix it thatcould actually reduce your
taxable income significantly.
John Tripolsky (16:20):
And I feel like, Chris, it's almost a little bit
serendipitous that we're havingthis conversation now because,
roughly, by the time we releasedthis a few days before, I had a
great, kind of a casual, call ita fireside chat, if you will,
with Mike Reed from your team.So and why bring that up, right,
is we we talked to tried toanswer the question of, you
know, are you my accountant?Kind of that infamous question,
(16:43):
but what came up a few times inthat was just the the weight it
carries on having your books inorder. Right? So even though
this might be very scary to somepeople, like, how do I know how
much I spent in advertising?
How much do I know I spent inutilities? The good thing is is
keeping your books in line asmuch as you can for the year, it
gives you the answers. You'rebasically just moving numbers
(17:05):
over. Right?
Chris Picciurro (17:07):
Absolute. I mean, yes. You you you having
accurate records is veryimportant. So I I would say if
you have a rental property, at aminimum, maybe set up a separate
bank account that you cancapture your income and
deductions through that are easyto export those transactions to
some type of software or even,you know, you summer I mean, you
summarize them at the end of theyear. So yeah.
Absolutely. Other thing toconsider, couple real quick
(17:30):
tidbits on this, you know, youhave to make sure that so by
default, I don't wanna go downtoo many too many rabbit holes
here, but by default, rentalincome is considered passive.
Now there are exceptions tothat, which for real estate
professional status and forshort term rental loophole.
Definitely check out theTeaching Tax Slow YouTube
channel for that information.But if you have a loss from a
(17:51):
rental property and it's deemedto be a passive loss and you
can't deduct that loss in thecurrent year, which is extremely
common, that gets reported on aform eighty five eighty two.
A form eighty five eighty twolists all your passive activity
losses, and that also flows fromthe schedule e. My point is
this. One thing I see missed allthe time, we might have even
(18:13):
talked about this on one of theprevious episodes, is that let's
say, John, you're preparing yourown return or you go to another
new tax professional. You have arental property, and you give
them you give them all theinformation needed to prepare
the return. You always need tolook back at the previous year
return to the c if, one, wherethe depreciation schedule is,
meaning your you know, how muchcost basis of the property is
(18:35):
and depreciation reduction.
But two, are there passiveactivity losses that have to get
entered into the new software?They're so easy to miss, and
they're very, very valuable,especially when you sell that
property or sell anotherproperty. So I would say eighty
five eighty two is definitelylinked to Schedule e. They might
not be brother and sister, butthey're going to the same,
holiday party or family reunion.
John Tripolsky (18:56):
Oh, they're that's a good way to put it,
man. And and I'm thinking, youknow, again, me not being the
tax guy here, I look at this asalmost if you do say we'll just
take example. You say you haveone rental property. Right?
Sure.
You might know how well it'sdoing. You know, at any given
time, you kinda have a gutfeeling. But this really is like
your annual report card. Right?Like, you had mentioned on
there, sometimes you forgetabout mortgage insure or, your
(19:20):
mortgage interest or yourinsurance.
Frankly, I mean, it kinda goeswithout saying, you might look
at this even if it's notprepared by you, might be
prepared by your taxprofessional. You might get
this. It's pretty important thatyou look at it because you might
say, holy cow. Like, I'm payingway too much in this, and you go
out and look at other options.So at kinda what I'm trying to
do is add a little life to avery static perspective form.
(19:43):
Right? Using it for a goodthing.
Chris Picciurro (19:45):
This is yeah. I'm gonna leave you with a
couple, yeah, a couple actionitems, pro tips, on Schedule e.
So Schedule e, let me leave youwith this. For on page two of
Schedule e, that's where you'regonna report any k ones. We have
a whole separate episode.
I think k ones for dummies,basics for partnership and s
corp returns. Any k ones you'regetting from a partnership or an
(20:05):
s corporation are gonna getreported on page two of schedule
e. Let's focus on page one. Whatare your takeaways from here?
One, most commonly misseddeduction, depreciation.
If you've missed it, it'sfixable. Go talk to a tax
professional. Two, make sure youbreak down the categories of
your expenses. I can't tell youhow many times, John, in my over
(20:28):
well, over twenty year careersomeone said, well, I got a
rental property. Yes, sir.
Can we what are the income anddeductions? Well, I make a
hundred bucks a month. Oh, yeah.That's not what we put on our
return. My mortgage is $1,100,and I and I rent them 1,200 of
rent.
Okay. That's great, but we needto break down to that. You put
that on a tax return, and Ipretty much, I'm not gonna
(20:49):
promise anything, but yourchances of getting examined are
extreme much higher. So break itdown, make it easy for your tax
professional to help you mix andthen the final takeaway is make
sure you properly categorize thetype of property in the rental
days. And, oh, one more bonusthat I already talked about, be
very mindful of form eighty fiveeighty two and how that plays a
(21:10):
role.
As always, shameless plug, ifyou've got rental property,
definitely jump in our defeatingtaxes private Facebook group,
defeatingtaxes.com. Ask anyquestion, John. We run something
almost every Friday where we weask members of the, of the
Facebook group. Ask any questionthat you want, and we reply
(21:30):
within one business day. We now,you know, it's funny, John.
We now we have a ton of taxprofessionals in that group that
always love to jump in and helpout the taxpayers.
John Tripolsky (21:39):
Absolutely. And even that, Chris, I mean, I
don't have mentioned this a fewepisodes ago given the time
frame here. If anybody's lookingfor somebody to prepare these
returns that actually knows whatthey're talking about, I
shouldn't say that in a bad way.It's not that a lot don't, but
are very familiar with thisform. What goes into a
strategies behind it?
You guys offer that through yourprivate practice and other
resources and whatnot. So andthat's just at 2025.tax. So two
(22:03):
zero, the numerical, two zerotwo five dot tax and has that
form on it. So you get ashameless plug. I get a
shameless plug, sir.
We both get a point on thescoreboard.
Chris Picciurro (22:14):
We'll take it. We need all the points we can
get as we enter March Madnesstime as our segue. And for
everyone that listened,honestly, thank you so much for
jumping into the ace, thesethree weeks of the of the ace
content. You know, again, likeyou said, John, this isn't the
sexiest stuff. We've had somereally cool, content as far as
tax strategy.
(22:34):
We've got very excited aboutwhat's coming up. But the ace,
schedule a, schedule c, schedulee, that that is the nuts and
bolts of foundation of of taxpreparation and tax planning. If
you'd like what you're hearing,again, we can't thank you enough
for people that have subscribedto the YouTube channel and given
us a five star review because itreally that's the fuel to our
(22:55):
fire, and it's it allows us tokeep cranking out great content
and and coming up with moretopics based on what our
community, the tax planningcommunity, tells us to do.
John Tripolsky (23:06):
Absolutely. And as always, we'll see everybody
back here again on the TeachingTax Flow podcast next week. So
it's gonna be a different day,different day, roughly about the
same time, but different topic.Thanks, Chris, again, as always.
And one more thing before wewrap up here.
We wanna know what you guyswanna hear. Right? So we
constantly get these topicsthrough our defeating taxes,
(23:28):
through that, Facebook group. Weget messages from people. If
there's anything you want tohear us discuss, sometimes we
don't have the best answers.
That's what I love going toChris for and say, hey, we got a
great topic. Go find a greatguest. And that's really what,
you know, Chris, as youmentioned, that that's the fuel
of our fire. Send us thoseideas. We'd love it.
We have so many of them. We justwanna make sure that what we're
(23:51):
doing is exactly what you guyswanna hear. Without going into
exactly what it is, we areextremely proud of just the
absolute sheer volume of peoplethat have downloaded this
podcast going on, like, twoyears, almost now a little bit
over. So keep them coming. Welove it.
And, again, we'll see you nextweek.
Disclaimer (24:12):
The content provided is for educational purposes
only. We encourage you to seekpersonalized investment advice
from your financialprofessional. For all tax and
legal advice, please consultyour CPA or attorney. Investment
advisory services are offeredthrough Cabin Advisors, a
registered investment adviser.
Securities are offered throughCabin Securities, a registered
broker dealer. The content ofthis podcast does not constitute
(24:32):
an offer of securities.Offerings can only be made
through an offering memorandum,and you should carefully examine
the risk factors and otherinformation contained in the
memorandum.
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