2013 Rental Profit/Loss Statement (Schedule E)

16 Jun

Now that taxes are behind us, I have a fresh look at our profit/loss statement for 2013. This version includes an additional duplex, so the interest of space each column is summarized by property instead of unit.

Income Duplex #1 Duplex #2
Rents received $23,703 $16,334
Expenses Duplex #1 Duplex #2
Advertising $29 $53
Auto & Travel $292 $1,364
Cleaning & Maintenance $553 $810
Insurance $772 $822
Legal and other professional fees $188 $187
Management Fees $0 $1,154
Mortgage interest paid to banks, etc. $6,134 $3,890
Repairs $996 $3,181
Supplies $524 $588
Taxes $4,154 $3,482
Utilities $58 $416
Depreciation expense or depletion $5,684 $4,284
Other: HOA Dues $600 $1,104
Other: Office Expenses $115 $233
Other: Transaction Fees $33 $15
Other: Meals $0 $2
Total Expenses $20,132 $21,585
Subtotal $3,571 $-5,251

Actual Cash Flow vs. Estimated
For tax purposes, we reported a passive activity loss of $1,680, compared to a net gain of $886 in 2012. In actuality, depreciation provided a tax shelter for 25% of the income, or almost $10k. This means actual cash flow is $8,288, which averages out to $690 per month.

Compared to our last balance sheet, we’ve not too far off from the $811/month cash flow estimate. I attribute most of the discrepancy to three things:

  • Purchase Expenses – 1-time costs incurred when buying duplex #2 – including the appraisal, inspection, etc.
  • First-Time Vacancies – I have a theory that the “first-time” vacancies for a unit are relatively expensive since we’re usually addressing deferred maintenance and getting things the way we like them. We had 3 in 2013, and expect another 3 in 2014 (whew!).

We’ve incorporated more property management fees in 2014, so I’ll be interested to see how well rent increases offset that additional expense. As long as we remain cash flow positive before depreciation, I’m happy, because I still believe the long-term benefits are more valuable than short-term cash flow.

Tax Implications
Generally, only passive income can be offset by passive losses, but there is an exception that allows up to $25,000 of the passive activity loss to be applied against other income. It begins to phase out depending on adjusted gross income, so we were only able to realize a $583 loss in 2013.

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