The most expensive tax conversation is the one you have after you buy. By then the ownership, the timing and the plan are set. This checklist is for the conversation before. Bring it to your CPA and the meeting gets shorter; the answers get better.
It is education, not tax advice. Your CPA makes the call on your return.
1. Your tax picture
- Your last two federal and state returns.
- This year's W-2s or pay stubs and what you expect to earn by year-end.
- How you file (jointly or single) and the state you live in.
- Any existing rentals and whether you have losses carried forward from them (IRS Publication 925).
2. The property plan
- Short-term or long-term rental? For a short-term rental, the expected average stay matters (Treas. Reg. §1.469-1T(e)(3)(ii)(A)).
- Who will run it: you, your partner, a co-host or a manager?
- Your realistic hours per week and your partner's.
- Which strategy you're weighing: a short-term rental you materially participate in, real estate professional status for one partner or neither. Each works only if you qualify.
Our guide to short-term rental tax strategy for physicians shows how that choice plays out.
3. Ownership
- How title will be held: in your names or in an entity. Your attorney advises on the entity; your CPA advises on the tax effect.
- Whether both partners will be owners.
If only one partner may qualify read how real estate professional status is measured.
4. Timing
- The expected purchase date and the date it will be ready to rent. Depreciation starts when the property is placed in service (IRS Publication 946).
- Whether that falls before or after December 31 and what bonus depreciation rate applies to that date.
5. Depreciation plan
- Residential (27.5 years) or nonresidential (39 years) for your situation (IRS Publication 527).
- Whether a cost segregation study makes sense at this price and who would do it. Our guide on cost segregation covers the trade-offs.
- Whether your state follows the federal bonus depreciation rules. Many states don't so the state return can look different.
6. Records from day one
- A separate bank account and card for the property.
- A contemporaneous hours log, if you're relying on material participation. See our guide on the hours test.
- Where receipts, invoices and platform statements will live.
- How rental income and expenses will be reported (Schedule E).
7. The exit
- How long you expect to hold the property.
- What depreciation recapture would look like if you sold in 5 or 10 years (IRS Publication 544).
- Whether you'd consider exchanging into another property instead of selling.
Our guide to home equity for a rental walks through the exit plan along with reserves and ownership.
The questions that tie it together
- Given all of this, will the losses be usable against my W-2 income this year, if I qualify?
- What is the single biggest thing that could go wrong and how do we avoid it?
- What do you need from me and by when, before year-end?
How The Full Blueprint fits in
In The Full Blueprint, this conversation happens before Step 6, acquiring the property so the plan is set while it can still change, depending on your facts. We introduce you to CPAs, attorneys and cost segregation specialists; you choose who you work with and your CPA makes the tax calls. The Full Blueprint is a coaching program of Twenty-Five Media Group LLC. It is separate from any lender and never arranges financing.