So we’re approaching the end of 2017 tax season, April 17, 2018 is the deadline to file an pay taxes you owe. You may request an automatic six-month extension Form 4868. Most taxpayers have a tax preparer or public accountant they’ve built a trusting relationship with throughout the years that will assist with this form. If you’re a homeowner a Schedule E Worksheet should be attached for residential rental real estate and if you’re renting personal property. Taxpayers get confused of when and when not to use this form. Recently I sat down with a Licensed Tax Preparer Mr. Richard Sabbatand picked his brain about some do’s and don’ts of using a Schedule E. The tax preparer should include a schedule E worksheet if you own real estate, paying mortgage, real estate taxes, real estate insurance, and receiving rental income.
No Schedule E Worksheet is needed if you live in a single family home and do not receive rental income. In this case you will attach a Schedule AWorksheet- Itemized Deduction, on this page there’s a section to fill in the mortgage interest and real estate taxes you paid for the tax year. Your mortgage company will send you a 1098 Form with this information located in Box 1-Mortgage Interest Paid and Box 11- Real Estate Taxes. You will receive a credit from the IRS based on how much mortgage interest was paid and your Adjusted Gross Income (AGI). A single family home may not have as much benefits as a multi-family home but still can very beneficial. Remember if you use your home for work purposes such as a home base business/home office you may claim a deduction on your taxes for costs related to insurance, repairs, and depreciation (Ex. meeting your clients to do business). Another way your home can benefit from the deduction is if you’re using the home space for storage and inventory. Another benefit for a single-family homeowner depending on which state you reside, is a mortgage credit certificate (MCC). This tax deduction helps low income, first-time homebuyers offset a portion of the mortgage on a new mortgage to help them qualify for getting a home mortgage, According to “Real Estate Find Law” the MCC program allows qualified buyers to deduct up to 20% of their mortgage interest payments made on a home from their income level. You have to apply with your state and local government to be issued a certificate.
A multi-family home can beneficial for taxpayers in many ways, as previously stated when you receive a 1098 form, from your mortgage company you will enter the mortgage interest, mortgage insurance, and real estate taxes on Schedule E worksheet and receive credit for it, instead of the Schedule A worksheet. Schedule E worksheet will be used on any real estate property with a rental unit, on this sheet you can add expenses and deductions that apply to your home. Some of your deductions can include utilities paid by taxpayer such as electric, gas, and water bills. As well as renovation expenses, if you purchased a countertop for the kitchen in the rental unit you can claim the deduction. You may also claim extermination, gardening supplies, cleaning products, plumbing services. The Tax Preparer also explained legal services are also deductible (ex. evictions, or suing tenants for damages done to the rental.) Always keep proof of your expenses just in case the IRS audits your tax return