Rental Income Tax Reporting - First Year Property Tips & Schedule E Questions

The HUD-1 categorization looks mostly correct! For tax purposes, certain closing costs are added to your basis while others are expensed. Let me help clarify a few things. Your allocation of recording fees, legal fees, title search, land survey, title insurance, and transfer taxes all look appropriate. These are generally capitalized and added to your property basis. For the fees you weren't sure about - the administration fee to building management and move-in fee are typically considered rental expenses in your first year. The working capital contribution is trickier - this is typically considered a capital asset and not immediately deductible since it's more like a deposit. Regarding your cost basis question - the $134,628 seems off based on the numbers you provided. With a purchase price of $520k, the land portion (based on your tax assessment showing roughly 68% building/32% land split) would be about $166,400, leaving a depreciable building basis of around $353,600 plus the bathroom renovation of $15k. Your basis for depreciation should be closer to $368,600, not $134,628. The $257 rental expense deduction also seems very low considering your three months of expenses. I'd carefully check how TurboTax is calculating your depreciation and expenses. Make sure you've properly allocated expenses to the rental period (Oct-Dec).

I went through the exact same headache last year with my first rental property! After struggling with TurboTax for days trying to figure out why my numbers looked off, I discovered taxr.ai (https://taxr.ai) and it seriously saved me. It analyzed my closing statement and rental documents and showed me exactly how to categorize everything correctly. For your situation, it looks like you might have the same issue I had - TurboTax was splitting my basis calculation incorrectly between land and building. The tool helped me identify that problem plus showed me several deductions I was missing from my first year of rental ownership. The nice thing is it gives you explanations about why certain items should be capitalized vs. expensed that you can refer to when filling out TurboTax.

I was initially skeptical about using taxr.ai for my rental property taxes, but after seeing it recommended here, I gave it a try. Honestly, it found several major errors in how I was handling my first-year rental property expenses. The biggest issue it caught was that I had incorrectly categorized about $4,200 worth of expenses that should have been capitalized rather than expensed. The document analysis feature was surprisingly accurate - it correctly identified all my closing costs and categorized them properly. It also flagged that my property tax allocation between land and improvements was way off, which was causing my depreciation calculation to be wrong. By fixing these issues, I ended up with about $1,800 more in legitimate deductions than I would have claimed otherwise. What really helped was that it explained WHY each item should be handled a certain way, so I actually learned how to do it correctly going forward rather than just getting a quick fix.

After spending 4 HOURS on hold with the IRS trying to get clarification on how to handle my rental property cost basis (similar situation to yours), I found Claimyr (https://claimyr.com). They got me connected to an actual IRS agent in under 20 minutes! You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent walked me through exactly how to calculate my cost basis correctly and confirmed that my TurboTax numbers were way off. She explained that common TurboTax errors with rental properties include incorrect land/building value allocation and improper expense categorization during the first year. Might be worth giving them a call to make sure your basis calculation is correct before filing. The peace of mind was totally worth it for me, especially since rental property tax errors can be a big audit flag.

I was totally skeptical about Claimyr when I first heard about it here. Thought it was just another service trying to charge for something I could do myself. But after my third 2+ hour hold attempt with the IRS about my rental property depreciation questions (and getting disconnected AGAIN), I decided to try it. I hate to admit it, but it actually worked perfectly. Got connected to an IRS agent in about 15 minutes who confirmed my suspicion that I was calculating my cost basis incorrectly in TurboTax. Turns out I needed to manually adjust how the land value was being allocated, which was causing my depreciation to be way off (similar to what the original poster is experiencing). The agent was actually really helpful and walked me through exactly how to fix it in TurboTax. Saved me potentially thousands in incorrect deductions that could have triggered an audit. Sometimes getting the info straight from the source is worth it.

For your first question, don't forget that some closing costs must be depreciated over 27.5 years rather than expensed in the first year! I made this mistake my first year and had to file an amended return. Points paid at closing for the mortgage should be amortized over the life of the loan. Legal fees, transfer taxes, and title insurance related to acquiring the property are added to your basis and depreciated. For your second question, that cost basis seems WAY too low unless you own just a small percentage of the property. With a $520k purchase price, even if the land value is high, your depreciable basis should be much higher. Double check if you accidentally entered a partial ownership percentage in TurboTax.

Don't overthink the building management fees! I spent hours researching this same question last year. The admin fee and move-in fee are definitely deductible in year 1 as rental expenses. The working capital contribution is trickier - technically it's a deposit into the building's reserve, so it's not immediately deductible. Also, make sure TurboTax is prorating your expenses correctly for the partial year. For things like property taxes and insurance, you can only deduct the portion that applies to when the property was actually a rental (Oct-Dec in your case). So that would be 3/12 of your annual amounts. This might be why some of your numbers look off.

I had a very similar situation with my first rental property! Your cost basis calculation is definitely off - with a $520k purchase price, that $134,628 figure suggests there's an input error somewhere in TurboTax. A few things to double-check: 1. Make sure you entered the correct land/building allocation. Based on your tax assessment ($215k land, $100k improvements), you should allocate roughly 68% to land and 32% to building from your purchase price. 2. Verify you didn't accidentally enter a partial ownership percentage or put in the wrong purchase price. 3. The bathroom renovation ($15k) should be added to your depreciable basis since it was done before placing in service. Your depreciable basis should be approximately: ($520k - $353k land value) + $15k renovation = ~$182k for the building portion. For the closing costs, most of what you listed (recording fees, title insurance, legal fees) get capitalized into your basis rather than expensed immediately. The admin fee and move-in fee to building management can typically be expensed in year 1, but the working capital contribution is usually treated as a capital asset. Also make sure TurboTax is correctly prorating your expenses for the 3-month rental period (Oct-Dec). Your actual deductible expenses should be much higher than $257 for three months of operation.