Renting out my house and tax deductions

[JD50]

So after a little bit of googling it looks like almost anything involved with renting out your house is tax deductible. We're going to use a rental property management company and it looks like they'll handle all of the tax stuff. We're going to be collecting about $200 less per month than we pay in mortgage payments, can that be claimed as a loss? When we move we're going to be renting, not buying a new house, if that helps. Any tips from the tax folks here?

 

[BoomerD]

Tread carefully and use a CPA or tax lawyer...

http://www.irs.gov/pub/irs-pdf/p527.pdf

 

[Drako]

My advice would be to sell your house

I did the rental thing about 20 years ago, and it was a giant pain in the ass. You will become familiar with Passive Activity Loss forms. See your accountant, or read up on the IRS site.

http://www.irs.gov/businesses/small/industries/article/0,,id=98881,00.html

 

[JD50]

My advice would be to sell your house

I did the rental thing about 20 years ago, and it was a giant pain in the ass. You will become familiar with Passive Activity Loss forms. See your accountant, or read up on the IRS site.

http://www.irs.gov/businesses/small/industries/article/0,,id=98881,00.html

I'll lose about 20k if I try to sell my house right now.

 

[BoomerD]

Then rent it out...but pay the money to deal with a GOOD CPA or tax lawyer before you do this.

Cover your ass...and not everything is deductible.

 

[Drako]

I'll lose about 20k if I try to sell my house right now.

Yeah, I was in a similar situation, that's why I rented my house. It's the house I'm living in today as a matter of fact. I got transferred for my job for a couple of years, so ended up renting it out knowing that I was going to be transferred back eventually.

Just make sure you have good rental manager, and some decent renters.

 

[NL5]

I've been doing it for 13 years. It's not that bad if you do it right. Great way to make money (long term) IMHO.

 

[Drako]

Just out of curiosity, how much is your rental manager charging?

 

[DrPizza]

It can go smoothly, or it can be a pain in the ass to rent your house out. Depends on who the tenants are & unforeseen things like a hot water tank springing a leak while still under warranty.

I can't figure out why you'd want to use a rental property management company though. How much of a cut are they going to take from your monthly rent? Also, use your own CPA for taxes. I'm not sure how the rental property management company could "handle the tax stuff" for you.

Every trip (to pick up the rent payment) is deductable at the current rate for mileage - $0.50 per mile for 2010, iirc. If you need to purchase a tool to work on the house with - tax deductable. Any materials, etc., tax deductable.

 

[Drako]

I can't figure out why you'd want to use a rental property management company though.

I pretty much had to use one when I rented, as my house is in California, and I was living in Virginia. Pretty hard to manage from 3000 miles away

 

[JD50]

It can go smoothly, or it can be a pain in the ass to rent your house out. Depends on who the tenants are & unforeseen things like a hot water tank springing a leak while still under warranty.

I can't figure out why you'd want to use a rental property management company though. How much of a cut are they going to take from your monthly rent? Also, use your own CPA for taxes. I'm not sure how the rental property management company could "handle the tax stuff" for you.

Every trip (to pick up the rent payment) is deductable at the current rate for mileage - $0.50 per mile for 2010, iirc. If you need to purchase a tool to work on the house with - tax deductable. Any materials, etc., tax deductable.

They take a 10 percent cut which is the standard. We're meeting with the guy later this week, they all say that they handle "tax preparation", obviously I'm going to ask what that entails. We're using a property management company because they handle all of the tenant stuff, emergency repairs, etc... And most importantly we're going to be living about 150 miles away.

 

[Drako]

They take a 10 percent cut which is the standard. We're meeting with the guy later this week, they all say that they handle "tax preparation", obviously I'm going to ask what that entails. We're using a property management company because they handle all of the tenant stuff, emergency repairs, etc... And most importantly we're going to be living about 150 miles away.

Tax preparation from a rental manager probably just means that they will send you a 1099 form, showing your rental income.

 

[JD50]

Tax preparation from a rental manager probably just means that they will send you a 1099 form, showing your rental income.

Yea, you're probably right. Is that counted as actual income since it'll be less than our mortgage payment?

 

[Drako]

Yea, you're probably right. Is that counted as actual income since it'll be less than our mortgage payment?

Yes, it's counted income.

You will have to compute your loss on Schedule E when you do your taxes.

You should also be getting documentation from the manager that shows all the expenses: Management fee, repairs, etc, that you will have to enter on your Shedule E and associated Passive Activities forms.

 

[JD50]

Yes, it's counted income.

You will have to compute your loss on Schedule E when you do your taxes.

You should also be getting documentation from the manager that shows all the expenses: Management fee, repairs, etc, that you will have to enter on your Shedule E and associated Passive Activities forms.

Ok cool, thanks. From a little bit of googling it looks like only your mortgage interest is deductible and the principle that you pay is not considered a loss, even if you're paying more in your mortgage payment than you're getting in rental income. Yea, I'll definitely have to get a CPA for this. I hope they're not too expensive.

 

[Drako]

Ok cool, thanks. From a little bit of googling it looks like only your mortgage interest is deductible and the principle that you pay is not considered a loss, even if you're paying more in your mortgage payment than you're getting in rental income. Yea, I'll definitely have to get a CPA for this. I hope they're not too expensive.

Actually, the loss may be deductible, but it depends on your AGI. I think it might be $100K or less you can deduct. Don't quote me on this.

I think most of the newer tax software like TaxCut and TurboTax probably has reasonable Schedule E software, but when in doubt, seek professional help .

 

[edro]

What if you make a profit on the rental?
Do you claim all rental income, or just the profit?

 

[DrPizza]

Actually, the loss may be deductible, but it depends on your AGI. I think it might be $100K or less you can deduct. Don't quote me on this.

I think most of the newer tax software like TaxCut and TurboTax probably has reasonable Schedule E software, but when in doubt, seek professional help .

I'm not 100% certain (I have a CPA do all my tax prep, so all I know is where I sign, how much my tax prep is, and I get a dark chocolate candy bar that says "take a bite out of the IRS") but I think you can only deduct mortgage interest on your primary property.

 

[JD50]

I'm not 100% certain (I have a CPA do all my tax prep, so all I know is where I sign, how much my tax prep is, and I get a dark chocolate candy bar that says "take a bite out of the IRS") but I think you can only deduct mortgage interest on your primary property.

I think we need one of our resident CPA's to chime in. When I spoke with a "mortgage specialist" from suntrust he said that the mortgage interest from the home that we would be renting is tax deductible. Now, I'm not sure if that has to do with the fact that we'll be renting when we move, so we'll still only "own" one home, I didn't think to ask.

 

[NL5]

I think we need one of our resident CPA's to chime in. When I spoke with a "mortgage specialist" from suntrust he said that the mortgage interest from the home that we would be renting is tax deductible. Now, I'm not sure if that has to do with the fact that we'll be renting when we move, so we'll still only "own" one home, I didn't think to ask.

It is generally. It's a separate schedule you fill out (or your tax guy). At the end of it you either have a gross profit , or loss. That is added (or subtracted) from your AGI.

Your primary residence mortgage interest is on the normal deduction schedule.

 

[BoomerD]

I think we need one of our resident CPA's to chime in. When I spoke with a "mortgage specialist" from suntrust he said that the mortgage interest from the home that we would be renting is tax deductible. Now, I'm not sure if that has to do with the fact that we'll be renting when we move, so we'll still only "own" one home, I didn't think to ask.

Read through the IRS link I posted. It should answer most of your questions.

 

[JD50]

Read through the IRS link I posted. It should answer most of your questions.

Cool, I'll read it a little more in depth tomorrow, thanks for the link.