Level 3

Common Expense allocation for Real Estate

Forum|Forum|3 years ago
September 12, 2022
1 reply
12 views

I have searched far and wide turned up little on the matter of common expense allocation for Rental Real Estate. What is the proper way to allocate common indirect expenses not attributable to any one property across a range of properties including land and not in service locations? Should they be allocated uniformly to all properties including land or not in service locations. Should they be allocated as percentage based on income of the properties, or allocated uniformly only to active in-service properties? Should they be listed as a location on the return rather than being allocated to individual properties? Should they be simply expensed with no allocation to properties? I have on CPA that did one way, another that did something else and one that seems to make more sense to me. Fully confused. Help will be appreciated.

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dkh

Level 15

I'm guessing by Common Expense you are referring to things like tax preparation fees?

I have one client that I deduct all of the tax prep fees on one of the many rental properties. I have another client that I divide the fees equally amongst all the rentals only because this is how it was done by previous preparer.

A

ACCLIGHTAuthor

Level 3

Thanks for answering. Common fees (indirect expense) would be anything not directly resulting from a specific property so bank account fees, umbrella insurance, general business consulting/accounting fees, mailing and so on. Obviously the expenses specific to each property appear on the corresponding 8825 entry but not clear on where common expenses would best appear and be accounted for.

dkh

Level 15

you mentioned 8825 so this is rentals under either LLC or SCorp. Setting up an 8825 just for these doesn't seem correct.

If it were me, I'd allocate expenses to properties. My last choice would be to deduct on page 1 of the return.

Be sure to allocate to properties not in service if the expense (such as insurance) covers those properties.

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