Appreciate some advice:
I have a residential property that I advertised for rental in June 2005, but was not occupied until October 2005.
As I did not meet the requirements to file a 2005 Income Tax Return (total gross income less than $8,200), should I still file a 2005 ITR 1040 and Schedule E to report the depreciation deduction and the net operating rental loss so that I could carry it forward to my 2006 ITR?
Could I also carry forward some of my start=up expenses (it is less than the max allowed of $5,000) to 2006?
Thanks to all who will respond.
Complete your 2005 tax return to include Schedule E and the asset depreciation schedules. If you don’t meet the minimum income requirements to file a tax return, then don’t. Just put the completed tax return in your files.
All carryovers to the next tax year will still be done the same way you would do it if your return was filed.
Now, you said that you had income, but that the income was less than $8200. Was any of this income subject to payroll withholdings, to include income taxes? If so, and if you want a refund of your income tax withholdings, then you need to file your tax return anyway.
You will have to explain what you mean by “start-up” expenses and what these are. What type of business are you starting up? Just curious what “start-up” expenses anyone would have for a passive income rental activity.
Thank you very much Dave for your response. I wish I have found this website long ago. I am new in this RE business, and you have cleared some questions in my mind.
There are no withholding taxes from my total gross income, mainly bank interest income and the 3 months rental income which did not come up to the $8,200 minimum requirement to file the 2005 ITR.
The startup expenses (approx. $3,000) that I have had were expenses incurred like minor repairs, property management fee, hiring a handyman, cleaning and landscaping services in order to get the residential property (used to be my primary residence until June 2005) up and running for rental. This is my first house rental business.
Could I treat these expenses as capital expense even without formally filing a 2005 ITR as well as without submitting a Section 195 election and just deduct them when I sell the property in the future, or simply, carry these expenses over to 2006, but I think not as operating expenses as they were incurred in 2005???
Thank you once again for your advice.
Ed
If the minor repair expenses were incurred after you put the property in service (hired the property management company), then the expenses are reported on your Schedule E as rental property operating expenses and carried forward to the next tax year.
If the expenses were incurred before you put the property into service, then they are personal expenses. Only costs for capital improvements are added to your cost basis.