 Here we are in our example, Form 1040, populated with LASERT tax software. You don't need tax software to follow along, but it's a great tool to run scenarios with. You can also get access to the Form 1040 related forms and schedules at the IRS website, irs.gov, irs.gov. Starting Point single filer, Mr. Anderson 90210, Beverly Hills. We're just gonna have the rental income flowing through at the 100,000 to start out with. That's coming from, of course, the Schedule E, which is the supplemental income and loss from rental real estate, so on and so forth. Basically formatted in an income statement, structure rental income minus rental expenses. Bottom line here, the 100,000, which in essence pulling into Schedule 1, which is pulling into Page 1, Form 1040. And we've got the standard deduction 12,950, giving us the taxable income, 87,050 tax, calculated Page Number 2, Total Tax 14774. Okay, so now we wanna run a situation where we have a more complex situation where we have a piece of rental property that let's start out with is partially for business use, I'm partially for rental and we partially use it for personal or possibly live in it for personal. Then we're gonna have a situation where some of the expenses we're gonna have to break out. So this is kind of more of a bookkeeping type of thing that you could think about. So if we had basically our general income statement, we might have rental income, for example. And let's say the rental income is 8,000. Let's say it's gonna be equal to 750 times 12. Let's say it was 9,000 of the rental income. Let's put that on the outside. And then we've got our expenses. So I'll say expenses, expenses, and then let's say that we have the mortgage interest. And let's first think about the total expenses and then we'll have to break them out between rental and personal. So let's say the total mortgage interest is 1,800. Let's say we have a fire insurance. Let's say that's 100. Let's say we have miscellaneous repairs on the rent. Let's say we have miscellaneous repairs rental. Rental. And then let's say we have real estate taxes of 1,200. Let's say we have, and so let's say that's the total. So total expenses is gonna be then the five total expenses. Let's sum them up here. So let me do this again. I had mortgage interest, fire insurance, miscellaneous repairs, 291 total experience, summing that up, boom. So there we have that. Let's actually pull this back into the middle and let's put an underlying here and that would give us a net income of this minus this. However, I'm using it partially for personal use. So I'd have to figure out my personal use. Now the income is just gonna be from rental property. It's gonna be some of these expenses that I might have to break out between business and personal. How might we do that breakout? We might do something like a ratio analysis. So we might say something like we could take the square footage or whatever would be reasonable. Square footage is common or the rooms compared to the total number of rooms. So let's say that the rental is let's say 300 square feet and the total square feet for the place is 1200 equals 300 over 1200% that would be 25%. So here's our percent rental. So the percent rental, 25%. So then I'm gonna say, okay, we need to break out the personal versus the rental here. So let's make this one a little smaller. And let's say this is rental. Let's say personal and rental. So let's say this is a personal and rental rental. And I'll make that our header. Let's actually pull this down a bit. I'm gonna select these and insert above it, right click, insert, I know I'm doing this fast, but it's not an Excel course. So I don't wanna, did I spell personal right? I doubt it. Course not. That doesn't look right. Idiot. What am I, change it. Change it, make it right. All right, and then we're gonna say this is gonna be black and white and center it. And so we'll say for the income, it's all rental. Cause obviously we didn't get income from the personal side, I'll indent these two just so we can see it a little more clear and dent that. But then on the expenses, we're gonna have a breakout. So it's gonna be 25% rental. So I'm gonna say this is gonna be equal to this times the 25%. Boom. So the personal side of it is gonna be this minus this or it's gonna be this times 0.75. However you wanna calculate it. Fire, we're gonna assume that's for the whole place. Same thing then. It's gonna be this times 25% for the rental. The personal will be the difference then. And then the miscellaneous I said was on the rental itself. So if it's on the rental itself, I'm just gonna say that's part of the rental property. I don't have to break it out because I did repairs to the rental part of the property, not on the personal. So there's no breakout necessary as there is for these expenses, which are for the full property which we then needed to break out. And then the real estate I'm gonna say is equal to this times the 0.25. And personal is this minus this. So there's our breakout. Let's put some underline here. So my net income on the rental is really gonna be this. I need to sum up the expenses. Sum up the expenses. Boom. So my net income is gonna be something like this minus that, the $7,934 here as opposed to this amount. We also have to deal with the depreciation we might touch on in a second. But also note that some of these items like the mortgage interest, this personal side of the mortgage interest, I might still get a benefit from because I might be able to deduct on the schedule A. Same with the real estate taxes. But so it would be a breakout between schedule E and A. So the total, let's put the total over here just so we can see, make sure that my totals match up for these two. So the total still tie out to these totals. So that looks good. All right, so let's go ahead. I'm gonna enter this data then into the system. So we'll say, okay, let's imagine this was our rental income statement. Let's go to the schedule E and I'm gonna say that we had a rental income of nine, let's say 9,000. So this is what we would have thus far. We don't have the depreciation on there yet, but we've got the income statement then being populated, the rents minus the portion of the expenses that are allocable to the rental property to get down to the net amount, which was that seven, nine, three, four. Now the amounts for mortgage interest and property taxes aren't gonna help me if I'm just having the standard deduction, but if they're significant enough to push us over to itemizing, then we might have to break those out into the itemized deductions, meaning you're gonna have to take that mortgage interest statement and break it out according to the ratio between those two possible deductible items. So if I said we had the schedule A then.