Handling Rental Properties and Rental Income in a plan

Many financial plans include investment properties and rental income. Entering a rental property and its associated income resources correctly in a plan involves getting the asset and the income stream right.

Entering Rental Income

Rental income should be entered as an item in the “Other Income” section of the plan. Typically, you'll enter this as a monthly incoming cash flow with “Tax Treatment” set to “Investment Income”. If rental amounts tend to do up over time for this property, you may want to enter this item with Inflation Treatment set to “Adjusted for Inflation” or enter a “Custom” inflation amount. Using the “Investment Income” tax treatment allows you to specify how much of this income is categorized as (potentially taxable) ordinary investment income and how much is not taxable (due to costs, for example).

Entering a Rental Property Asset

To enter a rental property asset, include it as an “Other Asset”. If you do not plan any sale of the property, you can simply note an assumed appreciation (growth) rate here.

If instead you want to include a planned sale of this property, check the “Include Planned Sale” box. You can now either state an assumed sale price (in future dollar terms) or use the assumed growth rate. For tax purposes, the most important value to enter is the “Adjusted Basis at Sale”. This will be the basis used in tax calculations, so please adjust this for any expected tax adjustments, including depreciation adjustments. (In a residence, this is where you would also include any tax-free portion of the sale amount from Section 121. For example, you would add $500,000 to the basis if this amount is available tax-free.)