 Most of this information comes from Publication 527, Residential Rental Property, including Rental of Vacation Homes, tax year 2022, you can find on the IRS website, irs.gov, irs.gov. Looking at the income tax formula, we're focused on line one income, remembering the first half of the income tax formula is in essence an income statement, but just an outline, other forms and schedules flowing into these line items. One of those, the schedule E, in essence an income statement in and of itself, rental income minus rental expenses, the net rental income flowing into line one income of the income tax formula. With rental real estate income as with business income, we typically want to keep it separate from our personal activities, which helps us with our bookkeeping, it helps us with our planning and budgeting into the future and of course, it helps us with our tax preparation. So in prior presentations, we've been focusing in on scenarios where we have a separate piece of property used 100% as a rental property. Now the concepts that we looked at in that type of scenario will typically apply even when things get a little bit more convoluted and then we've got to deal with the convolutedness such as situations where we have a personal use component. For example, if we use a property for rental property for part of the year and then we actually use it for personal use for part of the year, like a vacation home kind of situation. Or if we have a situation where we live in a unit or live in a place, but we rent part of it out, now we have to be parsing out between business and personal. We also could have situations where we have like common areas that we'll talk about. Okay, so first, let's take a look at the condominiums. So a condominium is most often a dwelling unit and a multi-unit building, but can also take other forms such as houndhouse or garden apartment. So now you've got this unit that's in a building. You own it, you're not renting the unit, but you own the unit in the building. So if you own a condominium, you also own a share of the common elements such as land, lobbies, elevator and service areas. So obviously, if you think about a building, you own a nice place in the condominium, but you have to get up there to get to the place. You've got the elevator, you've got all the common areas related to the condominium. Those are owned in part by the owners of the condominium. So now you've got this kind of community kind of situation that is owning these common areas, and then of course you own the unit exclusively. So you and the other condominium owners may pay dues or assessments to a special corporation that is organized to take care of the common element. So now you've got this little political unit that's designed for the purpose of taking care of those common areas, which everybody of course disagrees on how to do. But in any case, special rules apply if you rent your condominium to others. So you can deduct as rental expenses all the expenses discussed in chapter one and two. In addition, you can deduct any dues or assessments paid for maintenance of the common elements, which kind of makes sense, right? If you have the condominium, you rent out the condominium. Well, now you've got the expenses related to the condominium that are similar to other kinds of rental property, but you also have these dues that are being paid, which are basically required for the condominium. So you would think you'd be able to deduct them as rental expenses. You can't deduct special assessments you pay to a condominium management corporation for improvements. However, you may be able to recover your share of the cost of any improvement by taking depreciation corporatives. If you live in a corporative, you don't own your apartment. Instead, a corporation owns the apartments and you are a tenant stockholder in the corporative housing corporation. So it's a different structure of ownership, which could have some benefits but has some complexities attached to it as well. Clearly, it's a similar structure as we see in the business world with a corporation. So we can compare like a partnership, for example, to a corporation. If you have a partnership in a normal business setting, the partners own the partnership directly. Their percentage ownership is determined by their capital accounts and the partnership agreement. When we move to a corporation, we think of the corporation as a separate legal entity, which could lend some liability protection to the owners, the shareholders of the corporation, which is one reason to go to a corporation oftentimes in a normal kind of business settings. And then the ownership of the corporation is going to be broken out into fixed units of shares, which make the shares easier to kind of transfer oftentimes. And then someone's ownership in the corporation will be dependent on the number of shares that are owned in it. So you have a similar kind of structure here instead of valuing your particular unit or owning your particular unit and then having joint ownership of some kind to the common areas, you would think you can imagine the whole thing as basically one corporation kind of situation and your ownership will be reflected by the number of tenant stockholders. So once again, if you live in a cooperative, you don't own your apartment directly. Instead, a corporation owns the apartments, corporations being a separate legal entity, but it's just an entity. And obviously you own part of the entity and you are a tenant stockholder in the corporate housing corporation. So you own stocks that's going to be reflecting your value in the corporation. Okay, so if you rent your apartment to others, you can usually deduct as rental expense all the maintenance fees you paid to the Corporative Housing Corporation. In addition to the maintenance fees paid to the Corporative Housing Corporation, you can deduct your direct payments for repairs, upkeep and other rental expenses, including interest paid on a loan used by your stock in the corporation. All right, depreciation. You will be depreciating your stock in the corporation rather than apartment itself. This is where it gets kind of messy here. It gets a little bit confusing because now you have the stocks that are representing, which are in a corporation, which are representing your property. So you want to be able to get the depreciation clearly as an expense. So you will be depreciating your stock and the corporation rather than the apartment itself. Figure your depreciation deduction as follows. One, figure that depreciation for all the depreciable real property owned by the corporation. So we're going to think about it as a full unit first and then kind of think about our share of the depreciation based on our amount of ownership that we have. OK, so depreciation methods are discussed in chapter two. So the corporative would be doing their depreciation thing. If you bought your corporate stock after its first offering, figure the depreciation basis of this property as follows. A, multiply your cost per share by the total number of outstanding shares. B, add to the amount figured in A any mortgage debt on the property on the on the date you bought the stock. C, subtract from the amount figured in B, any mortgage debt that isn't for depreciable real property such as the part for the land because we can only depreciate the building. Two, subtract from the amount figured in one, any depreciation for space owned by the corporation that can be rented but can't be lived in by tenant stockholders. Three, divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. So now this is the ratio that we have now, right? Because it's our number of shares compared to the total number of shares out there. That's kind of our percent ownership, you would think, right? So four, multiply the result of two by the percent you figured in three. This is your depreciation of the stock. OK, your depreciation deduction for the year can't be more than the part of your adjusted basis defined in chapter two. So in the stock and your corporation that is applicable to your rental property.