First Year Landlord - Schedule E Filing Questions for Rental Property

I've recently started renting out our former residence and feeling a bit lost on the tax side of things. First time doing this and trying to understand how it all works for tax filing. Here's my situation: - Single rental property (our old house) that's in my name with a mortgage - Pretty much just covering costs each month, not making much profit I have a few questions I'm hoping someone can help with: 1. Depreciation on Schedule E - I understand it's a deduction, but how exactly is it calculated and reported? The property value according to online estimates actually increased about $45k this year, so I'm confused about claiming "depreciation" when it's worth more. 2. The rental is in Colorado but I've relocated to Texas. Do I have to file tax returns in both states for the rental income? 3. Is there any advantage to setting up an LLC for the property instead of just filing Schedule E on my personal taxes? Would my tax situation actually change? 4. I know mortgage interest, repairs, property management, and property taxes are deductible expenses. What about pet deposits or pet rent I collect? Is that just regular income or handled differently? Thanks in advance for any help - trying to get ahead of tax season!

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18 comments

Brianna Schmidt

•8M

Hey there! I was in your same position a few years ago. Let me try to help with your questions: 1. Depreciation is a tax concept that's separate from actual market value. The IRS allows you to deduct the cost of the building (not the land) over 27.5 years for residential rental property. So you take the value of the building when you converted it to a rental, divide by 27.5, and that's your annual depreciation deduction. The fact that the market value went up $45k doesn't matter - depreciation is about recovering your investment cost over time. 2. Yes, you'll need to file a nonresident return in Colorado reporting the rental income and expenses. Texas doesn't have state income tax, so you're good there. 3. An LLC provides liability protection, but it doesn't change your tax situation unless you elect to be taxed as a corporation (which most small landlords don't do). With a single-member LLC, it's still reported on Schedule E as a "disregarded entity." 4. Pet fees and pet rent are regular rental income that you report on Schedule E. The deposits are not income when you receive them - they only become income if you keep part of the deposit when the tenant moves out.

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Brianna Schmidt

•8M

For splitting land vs. building value, check your property tax assessment - it usually breaks down the value between land and improvements (building). If not, some people use a ratio like 80% building/20% land, but you should try to have something that backs up your allocation. Your tax professional can help with this too. For your second question, you start taking depreciation when the property is "placed in service" as a rental - so in your case, July of last year. You'll get a partial year of depreciation for that first tax year. And just so you know, depreciation is mandatory - even if you don't claim it, the IRS will assume you took it when you eventually sell the property.

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Alexis Renard

•8M

After dealing with the exact same issues when I became a landlord, I found this amazing tool called taxr.ai (https://taxr.ai) that completely simplified the whole process. It was especially helpful for figuring out the depreciation calculations and state filing requirements. I uploaded my mortgage documents and property details, and it walked me through exactly how to split the land/building value, calculate my depreciation deduction, and even showed me which forms I needed for the Colorado nonresident filing. Honestly saved me hours of research and probably a few mistakes.

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Alexis Renard

•8M

It actually does a really thorough job with deductions. It asked me questions I never would have thought about - like prorating certain expenses for the time between when I lived there and when I started renting it out. It even flagged some home office deductions I could take for the time I spend managing the property. When it comes to accuracy versus a CPA, I was impressed by how detailed it was. The tool was actually developed with input from tax professionals who specialize in real estate. That said, for super complicated situations, having a human review is always smart. But for my single property situation, it caught everything my previous accountant did plus a few things they missed.

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Camila Jordan

•8M

Just wanted to follow up about my experience with taxr.ai after trying it based on the recommendation here. I was really struggling with figuring out my rental property taxes and was about to pay a CPA $500+ to handle it. The tool walked me through the entire Schedule E process step by step, and I discovered I could deduct travel expenses for my trips to check on the property (which I had no idea about). It also helped me correctly calculate my depreciation based on my county's assessment of land vs. building value. Ended up saving about $3,200 in deductions I would have missed on my own! Definitely recommend it if you're new to rental property taxes like I was.

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Madeline Blaze

•8M

If you're having trouble reaching the IRS with questions about your Schedule E (which I certainly did), try Claimyr (https://claimyr.com). I spent days trying to get through to someone at the IRS about my rental property questions and kept getting disconnected. Used their service and got connected to an IRS agent in about 15 minutes instead of waiting on hold for hours. They have a good demo video here: https://youtu.be/_kiP6q8DX5c that shows how it works. The agent I spoke with clarified that I needed to report my rental on both state returns and confirmed the rules about depreciation recapture when you sell.

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Madeline Blaze

•8M

It uses a system that navigates the IRS phone tree and waits on hold for you. When an actual IRS agent picks up, you get a call connecting you directly to them. It's not making repeated calls - it's just doing the holding part for you. It definitely connects you with real IRS agents, not third-party experts. I was skeptical too, but I absolutely spoke with an official IRS representative who could access my tax records and everything. That's why it was so valuable - I got official guidance directly from the IRS without the typical 2+ hour wait.

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Tyler Lefleur

•8M

I have to apologize for my skepticism and admit I was wrong about Claimyr. After struggling for weeks trying to get an answer about how to handle my rental property depreciation when I had made some improvements, I finally gave in and tried it. Got connected to an actual IRS representative in about 20 minutes. The agent walked me through exactly how to handle the improvements (they get depreciated separately from the original building value, which I didn't know) and clarified my state filing questions. Saved me a potential audit headache for sure. Sometimes good services actually exist!

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Emma Swift

•8M

It should flow through automatically when you complete Schedule E and Form 1040. The key is that you need to be "actively participating" in rental management decisions (which it sounds like you are). The tax software should handle this calculation, but just make sure the loss from Schedule E is being applied against your other income on your 1040. One caveat - if you use a property manager and aren't making most of the management decisions yourself, you might not qualify as "actively participating," so keep that in mind.

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