 Income tax 2021-2022, software example, residential rental property, rental income and expenses if no personal use of dwelling. Get ready to get refunds to the max, diving into income tax 2021-2022. Lassert tax software, you don't need tax software to follow along, but you might want to have access to the forms and schedules which you can find on the IRS website, irs.gov, irs.gov, starting point. We've got the single file or Adam Smith living in Beverly Hills 90210 100,000 on the W-2 wages to start off with. We've got the standard deduction 12,550 to get us to the taxable income of 87,450, which we can mirror on our tax formula 100,000 income, 12,550 standard deduction 87,450 for the taxable income, rolling on over to page number two to see the starting point for the tax calculation at the 15,015. Let's bring that 15015 for the tax calculation. So now we're going to be comparing and contrasting that to different types of income. So we saw before basically a schedule C and then we'll go to our objective here, which is going to be the schedule E. So we've got basically first the W-2 income up top. Let's move it to the schedule C and then go to our destination being the schedule E is just to look at the differences. Going to the top to the right, we're going to say no W-2 wages this time. Let's put some info in the schedule C, the schedule C down below. We're going to say that we had 100,000, 100,000, 100,000, that's 10,000. You're missing a zero or a zero. And then let's do it this way, I'll put 120,120,000 here and then 20,000 down below so it nets out at 100,000 when we go to the forums. You'll see what I'm talking about. If I go to the schedule C, now we basically got our income statement, 120,000 minus the 20,000 gets us our 100,000 C, that's what I was talking about. And then that rolls in to the schedule one that you could see the business income, 100,000 that rolls in in essence to page one of the 1040. So now we don't see it up top here, but down below on the 100,000. We also have some other things that we want to keep in mind that are kind of differentiating factors. And one is what's going to happen with the self-employment tax. If it's schedule C income, then we typically have to have the self-employment tax calculation here, which is significant at the 14,142. That then rolls into schedule two. So there it is there. And then it rolls into the form 1040 page number two. And there's the 14,129. We get half of that as a deduction amount. So if I go to the schedule SE again, we get half of that 7,065 in this case, going to schedule one and schedule one page two. There's the 7,065 rolling into page one of the form 1040. So we have that here for the adjusted gross income of the 92935. So and so we've got that self-employment tax. But then we also have this qualified business income deduction, possibly depending on the business and so on calculation, which again, is significant and complicates the calculation fairly dramatically. Let's now do the same kind of thing and go to the schedule E. Let's go to the schedule E and say, okay, what if I had like a similar pretty basic scenario here on the schedule E income, which is kind of like a business, but it's a rental property. So I'll go over to the rental income. And then we're going to say we rent in the southern home that we have in Beverly Hills, 90210. It's just a nice little place. And we're going to say then that we're going to rent that. Let's say we got 120,000 on income in essence. And then let's just put just the 20,000 for the expenses. And then we're going to go to the forms and check it out. So if I go back to the 1040, now we've got not the schedule C, because I took everything out of there, even though it's still there, but the schedule E, which is the supplemental income and loss. That's where our focus is from rental real estate. So now we've got the information. Let's just check this one out. This is our major destination form. We've got Adam Smith. We've got the information. Did you make any payments in 2021 that require you to file form 1099? So you'd have to issue the 1099s again, if necessary, to contractors. If yes, did you or will you file forms 1099 forms? If we had to, we're going to do that. Here's the address that we're going to be putting up top type of property. We put a number one here. For each rental real estate property listed above, report the number of fair rental and personal use days. So we're going to put the fair rental at the 365 for the year on this one. And then we in essence have the rents up top, basically the income and the expenses, basically an income statement, getting us the net down here of the 100,000, which is our major focus at this point in time. And so that 100,000 is flowing into schedule one. So there's the 100,000 that flows into the form 1040. So we see it here on the 1040 again, but we don't have that same calculation for the self-employment tax, which is significant. And we don't get that. So that's like a good thing, right? We don't get the self-employment tax, but we also don't see the qualified business income deduction here calculation, which would be kind of a bad thing. So you got some pros and cons as you're moving from the schedule E income, same kind of 100,000 that we moved from a W-2 to a schedule C now to the schedule E on page two. We just got the tax being calculated, which was basically the same as the W-2. We don't see the added tax with regards to the self-employment tax. So that is significant. The other things just to consider here in terms of the deductions, it'll look pretty similar to other, like a business, the things that you needed to consume in order to generate the revenue, you would expect to be deductible. So you might have things like, of course, the advertising. Let's lower the advertising to like 10,000. You might have auto in travel. When we talk about auto expenses, you might then have something that's going to be for like the mileage rate versus the direct write-offs. You have the same kind of issues you do with the schedule C business there with the travel and the auto and so on. You might have the cleaning and maintenance. Let's just put 5,000 there. You might have commissions. Let's put 1,000 there, gardening. We could have 500 insurance, legal and professional. We've got the license and permits. We've got the management fees. If we have someone else managing the property miscellaneous, we got the mortgage interest, of course, which we might get the form 1098 for. So we've got the 1098. We might have to deal with the points and everything that's going to be involved with the calculation of the points, which is typically the most difficult thing to do when you first take out the new loan, looking through the closing statements to see if you need to basically amortize any of the points, in which case, instead of putting them here, you might put it on the books and amortize them, kind of like a depreciable calculation, painting and decorating a common pest control that we would have repairs, now repairs versus something that you would have to capitalize as something you got to basically be careful of. We talked about like something like repairing a roof versus putting a new roof on or something like that. Obviously, once you get something that's quite costly, then it's more likely that you end up needing it to be capitalized, telephone, utilities and so on, common types of items. Obviously, real estate taxes or yeah, the real estate taxes, property taxes would be another kind of common type of cost that you would have. So if we'd rolled this over, then we'd have, we'd got the rental income and all basically the expenses we basically have an income statement that we would be calculating here. Now note, we gotta be careful, we'll dive deeper into if we had a loss or something like that later, because you'll recall that the government's gonna be skeptical of losses on the rental activity in even more so possibly than other areas like a schedule C. Now, if we did have large improvements and obviously the property itself would be depreciated, we'll talk more about depreciation later, but the rental property itself is something that even if we paid the cash for, we'd have to put it on the books as basically an asset and then depreciate the cost of it and the same would be the case for large purchases. So we talked about having the repairs versus having an improvement. If it were an improvement, instead of having the expense at this point in time, we might have to put it on the books as an asset. Note that we don't have a balance sheet here on the schedule E, this is just an income statement, but we would have another schedule, which would be the depreciation schedule, which would basically be a balance sheet type of account, which would help us to calculate the depreciation and then when it does hit this income statement type form, the schedule E, it would be in the form of depreciation. So that's the basic idea, we'll get into some more details about the deductibility of certain things in the future. Obviously things get a bit more complex if you have the property that is partially rented and partially for personal use. So we might dive into that more in future presentations as well, but the general idea is we would have the schedule E, basically the income statement, the net then rolling in to the schedule one and then that would roll in to the form 1040 and you wanna keep that distinct. And one of the reasons it's on a schedule E as opposed to a schedule C is because you have some of these differences with the rental property, such as the self-employment tax possibly being a difference as well as the qualified business income deduction. Otherwise, they're similar in that we basically have another schedule, which is kind of like a business schedule, which basically has an income statement that's flowing from there then to the form 1040.