The Income Statement is a very important accounting document
Here is an example of an Income statement for a ten-unit one bedroom apartment building after 12 months. The purchase price was $260,000. Assume $40,000 land value and the difference is the $220,000 improvements (building) value. If we divide the building value to the 27.5 years
$220,000 / 27.5 years = $8,000
depreciation
per year for 27.5 years.
In the following example the most important numbers: Net Operating Income (pretax)- as a result of subtraction between Gross Income and Total Expenses - and the Loss, has been highlighted.
Net Operating Income Statement
for 12 months - 12/31/XX
Income
Gross Rental Income $50,000Laundry income $1,000 Less Vacancy & Collection Loss (5%) <$2,550>
Gross Income $48,450
Expenses
Management $2,500Administrative expenses $1,500 Maintenance $6,000 Insurance $2,000 Utilities $9,000 Reserves $1,000
Total Expenses $22,000
Net Operating Income (pretax) $26,450
Taxes <$7,000>Interest <$12,000>
Net Income after tax and interest $7,450
Depreciation
Net Income /Loss <550>
The loss $550 is going from Schedule E or Form 8825 rental Real Estate Income and Expenses of a Partnership or an S Corporation line 21 to Form 1040 U.S. Individual Tax Return line 17.The point here is the loss may be up to a $25,000 deductible for taxpayers with the total income up to $100,000, some limitations apply for more total income.
The real estate professionals
can deduct more than $25,000 losses. They know how to do it and do not need to read my web page for that. For tax deduction the professionals use CPA accountants and good tax softwares.
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