Rental Investment

[jadira1021]

Hello, 

I have a client who has a contractor business and has purchased a duplex as an investment.  I am trying to find out if the money used for the down payment, taken from his contractor's business bank account is deductible from his contractor's business as an investment expense.

[Jim-from-Ohio]

It is not an expense.. It is part of the basis of the rental property, an asset. 

[judys3]

This would be included in the original purchase of the investment property as part of the basis.

[ljr]

Did the contracting business buy the duplex itself or did the owner just take cash out and purchases it in their own name? 

Either way not an expense - an asset to the business or an owner draw

[IRonMaN]

Ouch.

[qbteachmt · Accepted solution]

"as an investment expense."

Let me try to explain this for you. This is some basic info.

When you make an investment, you can see what you got for the money. That is a value, and it required money, but that is expenditure, not expense. When you pay for a building, you no longer have the money, but you have the building.

An expense is, for example, something that is paid for and then all used up, such as Monthly rent, printer paper, utilities. It also is cash flow, but it doesn't buy something that has what the IRS calls "a useful life." You pay rent Monthly.

A building lasts a lifetime, usually.

"money used for the down payment"

The next word to learn is Basis. When you invest in something, you are putting in your cost, or Basis. As you improve a tangible asset such as a building, the repairs will be expense but the expenditures that make a significant change or improve the building are increasing your investment in the property, so that adds to Basis.

"taken from his contractor's business bank account"

You need to know the business entity type, to know what "taken" is categorized as.

"is deductible from his contractor's business"

Is it part of a business endeavor? For instance, a run down building to be rehabilitated and then sold. Or, to be rented and occupied. Or, as asked, perhaps the business doesn't even own the building, so you can't "put it in the business" if it is owned personally.

These are things you want to learn about, if you are going to prepare taxes for clients.

[jadira1021]

Thank you for taking the time to respond to my question. Do you have any suggestions as to where I can gain more knowledge on taxation?

[abctax55]

Ouch is right... SMH

[abctax55]

The Tax Book (and probably Quickfinder too) used to have complete examples of preparing returns.  It also has CPE classes; a certain number of hours comes with the subscription.

CPAacademy has numerous free CPE classes (but they are more of an overview than 'nuts & bolts').  At least the ones I've taken. 

You need some basic 'tax prep 101 training' and even some basic accounting training (I'm a firm believer that an understanding of accounting is invaluable when preparing tax returns - even Sch C's that don't require a balance sheet).

In the past, H&R Block offered a class (6 weeks?) that did provided a good, basic understanding.  I sent 4-5 employees to it over the years.  You might see if that's available; I know they changed their process a while ago & want a commitment to work for them, or want a sign covenant not to compete or some such nonsense. 

[abctax55]

https://www.thetaxbook.com/products/online-cpe