Is income from your rental properties active or passive? What is the best way to report your income and expenses for rentals? How long do you have before having to pay taxes on the sale of your property rental? Toby Mathis and Jeff Webb of Anderson Advisors answer your tax questions about income from rental properties. Submit your tax question to taxtuesday@andersonadvisors.

Highlights/Topics:

Is retirement income considered passive or active income? If it is a passive income, then can passive real estate depreciation be used against retirement income? Retirement income is not passive, active, earned, or portfolio income. It's ordinary income. Retirement income is not going to offset your passive losses, but it can cause social security to become taxable.

I've been told that filing Schedule E for rental properties, which I've been doing for the past several years, is not a good way to report your income and expenses for rentals. I want to file 1065, but I don't have a partner and don't intend to get one. I don't think Form 1120 or 1120S is a good way to file either. What do you recommend for next year? Stay away from corporations because of liability and other issues with appreciated property. If you take an appreciated asset out of a corporation, it's a taxable event.

I closed on a co-owned rental property in April 2021. I did not have an LLC with my co-owner, and we are still in the process of forming an LLC to protect the asset. Can we still take all the real estate deductions on our 2021 tax return, absent having an LLC in place last year? You don’t have to necessarily have a partnership agreement to form a partnership. Whether you had an LLC or not, you have effectively created a partnership, unless you've done this as tenants-in-common.

I just sold my condo that I owned for three years. One year I lived in it and two years I rented it out. How long do I have before I have to pay taxes on my sale? Technically, your taxes are due as they're accrued. You might have some quarterly taxes on it and your actual tax bill is going to be April 15 of the following year. If you sell it in 2022, you have to pay the tax on April 15, 2023.

For all questions/answers discussed, sign up to be a Platinum member to view the replay!

Go to iTunes to leave a review of the Tax Tuesday podcast.

Resources:

Schedule E

https://www.irs.gov/forms-pubs/about-schedule-e-form-1040

1031 Exchange

https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx

Entity Formation

https://andersonadvisors.com/entity-formation/

Form 1065

https://www.irs.gov/forms-pubs/about-form-1065

National Alliance for Recovery Residences (NARR)

https://narronline.org/

Toby Mathis

https://tobymathis.com/

Anderson Advisors

https://andersonadvisors.com/

Anderson Advisors on YouTube

https://www.youtube.com/channel/UCX5nh607M8hSBLiMB9MgbIQ

Anderson Advisors on Facebook

https://www.facebook.com/AndersonBusinessAdvisors/

Anderson Advisors Podcast

https://andersonadvisors.com/podcast/