Management Expneses - set up new Sch. E

[Strongsilence-CPA]

Client is an individual with rental properties. There are expenses which are not allocable or identifiable to a specific rental.  Trade subscriptions and travel and meals are the biggest of these.

I thought of creating a new schedule E to deduct these "common" expenses. But I recall someone in the past saying this was not a good idea. 

I think that the expenses would not be deducted until this activity is disposed. And when would disposition occur? The answer is nebulous.  F 'fake' disposition must be input in the software each year to deduct these expenses isn't right.

I'm going to allocate the expenses. And that presents the problem of the best, or most reasonable, basis for allocation.  Is it time spent, or relative amounts of income each property produces, or something else?

Any ideas are helpful.

[George4Tacks · Accepted solution]

I would just deduct things like trade publications equally amount the properties. How is T&M involved? Going to real estate seminars? If so, I would also allocate equally amount all the properties. 

Back in the dark ages, I just carried an extra property to do these things, but the advent of PIGS and PALS put an end to that practice.  I recall things like pens & paper, PO BOX, postage, ....

[Strongsilence-CPA]

Thank you warmly and kindly George.  I allocated because of the complications that would have been involved with PALS.

[rcherenson]

I had this issue arise last year with a new client who owned two rental properties but was separately filing a Schedule C she had obtained an EIN for to write off her travel, meals & other expenses related to her research & meetings to find new rental properties to purchase. She deemed it a separate biz, but after I pointed out she could not have a biz that had no income and only loss for more than 3 years (and even so, that alone made her an audit risk), she applied for a new EIN to start a new biz to continue same for another 3 years. Not received her tax data for this year yet, but that was my recommendation - to spread the expenses across her existing properties, as they did show a profit. Writing off expenses for the search for a new property to purchase should apply to that property - if purchased - but writing off failed searches for new properties to acquire applied to existing ones seemed a dodgy endeavor to me.

Would love to hear more thoughts on this BEFORE she send me her tax data this year. She's an incrediblly complicated return for many other reasons, but this was the only issue that didn't sit well with me.

[Strongsilence-CPA]

Thank you.

Another issue that arises is how to allocate the common expenses.  What reasonable basis can be used for allocating of types of expenses?  My client - like almost all clients - said to "put them against the properties where I need them"!  Ha HA!  They were thinking tax avoidance.  The basis I used was not tax avoidance.  I explained it but they were not that happy.