My client purchased a 4-plex (4 units on one building, purchased all as one transaction) and rents out each unit individually - can i combine the income/expenses on schedule E as one property or do i need a schedule E for each unit in the 4plex?
Form 1098 was also sent as one form for all 4 units, if i need a separate schedule E for each unit, how would i split this up in the system as it only allows you link the 1098 form to one schedule E?
any assistance is appreciated.
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Sure, you can lump all the incomes, and associated expenses on one Sch E. What i would probably do, however, is have 4 different assets within that Sch E... just in case he, at some point, sold the units individually, or had to remodel only one of them, etc.
I recommend separate Sch E for each unit because I find that, in the long run, it is easier if one depreciating item needs to be replace and gives a more accurate record of income and expenses per year, per unit.
If the units can be sold individually from one another, Id keep them separate.
If the property can only be sold as all 4 at once, I'd lump into one.
I agree with Lisa. Another circumstance to consider separating them all now is if one of the units will ever be used for personal use. If a unit may be used for personal use, I think it makes it easier to separate them out now, rather than later.
thank you for everyone's input, i appreciate it. i am still a little new to all this and getting my feet wet without much help, so this is huge for me.
it was purchased as one transaction, as all the units are attached in one building, no plans of selling them separately. I lumped it into one sched E, amortized closing costs separately, and depreciated the appliances (bonus).
Plans are subject to change. Appliances don't all get replaced at same time. Repairs on each unit differ, etc. I still say separate the units..allocate the depreciation on the building at 25% each then report income, annual expenses, appliances etc per unit separately. You will be happy you did later on.
- YES, if you are a real estate professional with material participation and make the proper written election, you can combine them as a single property on the Sch E and keep your books as if it were 4 properties and assign depreciation to each of the 4, if desired, or you can depreciate the property as if it was a single property. Otherwise, you should treat each rental separately. WIth QuickBooks, you can use classes to make things easier -- having one class for each property as a sub-class of the group class.
- GROUPING ELECTION. See REV. PROC. 2010-13 AND ELECTION TO GROUP ACTIVITIES PURSUANT TO REG. 1.469-4(c)
- Grouping of more than one rental activity into a single group is generally allowed if it forms an appropriate economic unit. Residential and non-residential rental operations can be grouped. Facts and circumstances rule the analysis, but these are considered:
The amount of income produced by each activity
The similarities and differences in the types of activities
The common ownership of the activities
The common control of the activities
The geographical locations of the activities
The interdependency between of the activities
- Taxpayer must be a “real estate professional” with material participation and must file a written statement with the taxpayer’s original income tax return for the taxable year in which the trade or business activities or rental activities are grouped or regrouped.
- If the elements of the group change by sale, acquisition or regrouping, taxpayer must update the grouping election.