Rental Property

[Pho King]

My friend just bought a condo and is planning to rent it out to make some money. He isn't listing it as a rental property however when he files his taxes, he's going to say it's his primary residence, and get the tax benefits.

Is it really that easy to do this? I mean I'm assuming there is quite a few people who do the same thing, I just never realized it was this easy.

Are their any consequences and if so, how would the government catch someone doing this?

 

[Hammer]

as long as he isn't claiming something else as his primary residence, i don't imagine he's going to get caught.

 

[edro]

So where does he live? In an apartment? He can't have 2 primary residences... If he is renting and saying the condo is his, I guess that would work. Just hope he doesn't get audited and the tax mail doesn't go to the condo.

 

[sixone]

How will he account for the rental income? Seems like he's just asking for trouble. Especially if he's broadcasting his plans to everyone he knows.

 

[Jzero]

I can't imagine the tax benefits are great enough to outweigh the risks...

 

[KillyKillall]

Your friend might be really smart....or really dumb.

 

[Vic]

That's tax fraud. Of a type that would be easily caught (how can you have 2 primary residences?) and that makes absolutely no sense to do either (as rental properties can have tax benefits due to profit-and-loss as well). Your friend sounds like an idiot.

 

[Pho King]

He lives at home with is parents. I don't know how he is going to account for the rental income, but that income is just going to roll back to his mortgage. With interest rates rising and the rental market coming back, it seems like a good idea. Housing prices are still way too crazy in the San Jose bay area though!

 

[DrPizza]

tax benefits of it being a primary residence?

I also own a rental property... I have to claim the rent as income. I would never in a million years dare not to claim it.
Let's see... I drive to the store to pick up something for a repair on that house = write off the mileage, write off the cost of the item..
depreciate the house... etc. etc. Tons of tax benefits. (round trip is about 50 miles to and from the house... but, that's the closest city to me. So, as often as possible, I make sure I have something to do at the house.

 

[Epic Fail]

Originally posted by: DrPizza
tax benefits of it being a primary residence?

he could be trying to save on capital gain tax if he plans to sell the house at a profit later, it's a big difference if you lived in it or not

 

[Pho King]

yeah, like yamadakun said, I think he's stating it as a primary residence to save on capital gains taxes later down the line. I figure with today's rates, he'll still have to pay a little out of pocket to cover the mortgage for a while.

Seems like a good idea to make money. I know everyone is saying there's a housing bubble, but it's been going strong for a while now (2+ years). I don't think a bubble's ever been predicted, it's always in hindsight. But I just can't see how anyone can afford (and would want to) to pay these bay area prices! Maybe I'm just bitter and I need to post in the housing bubble thread.....

 

[Vic]

Primary residences are not exempt from capital gains taxes (unless you promptly re-invest the net proceeds into a new primary residence, and then with a cap of $250k per transaction).

 

[DrPizza]

Originally posted by: Pho King
yeah, like yamadakun said, I think he's stating it as a primary residence to save on capital gains taxes later down the line. I figure with today's rates, he'll still have to pay a little out of pocket to cover the mortgage for a while.

Seems like a good idea to make money. I know everyone is saying there's a housing bubble, but it's been going strong for a while now (2+ years). I don't think a bubble's ever been predicted, it's always in hindsight. But I just can't see how anyone can afford (and would want to) to pay these bay area prices! Maybe I'm just bitter and I need to post in the housing bubble thread.....

in some areas, it's a GREAT way to make money. Around here, I could find homes with 2 apartments for around 20-30k... need work, but livable. If you had the cash to invest and lived locally, you could purchase and rent each apartment out for at least $300 and up, depending on the condition of the place. Quick calculation of 600 income per month vs. mortgage and taxes on a place like that, and you'll see that you profit.

 

[FrustratedUser]

Originally posted by: Jzero
I can't imagine the tax benefits are great enough to outweigh the risks...

You can deduct the interest on the loan. You can't do that if it's not your primary residence. That's a few $$$$$/year right there.

I would not take that risk myself.

 

[Epic Fail]

Originally posted by: DrPizza

Originally posted by: Pho King
yeah, like yamadakun said, I think he's stating it as a primary residence to save on capital gains taxes later down the line. I figure with today's rates, he'll still have to pay a little out of pocket to cover the mortgage for a while.

Seems like a good idea to make money. I know everyone is saying there's a housing bubble, but it's been going strong for a while now (2+ years). I don't think a bubble's ever been predicted, it's always in hindsight. But I just can't see how anyone can afford (and would want to) to pay these bay area prices! Maybe I'm just bitter and I need to post in the housing bubble thread.....

in some areas, it's a GREAT way to make money. Around here, I could find homes with 2 apartments for around 20-30k... need work, but livable. If you had the cash to invest and lived locally, you could purchase and rent each apartment out for at least $300 and up, depending on the condition of the place. Quick calculation of 600 income per month vs. mortgage and taxes on a place like that, and you'll see that you profit.

you calculation forgets the initial down payment you need to make and assumes that the real estate market will outpace what you can get from investing the money, not to mention the time and effort needed to maintain the house.