Any tax geniuses out there? RE: Renting (rental, condo)

[dman72]

So let's say you bought a condo that lost about 25K in value over the last 3 years (according to comps). Now, you want to buy a house, and you can afford a mortgage on one that's signifianctly more than the one on the condo, but you don't want to take a loss on the condo. Now you have the rental income on a seperate schedule, minus taxes, mortgage interest (you can't now deduct principal payments, right?) and depreciation. Has anyone else done anything like this, and how much am I going to have to pay a tax accountant to sort this mess out every year? Is it better to just take the loss?

[mathjak107]

im not following the question? if the question is if the condo isnt a rental can you write off the loss the answer is no, you can not write off losses on your personal residance only investment property

if the question is how easy is schedule e for a rental its very easy to do ,in fact turbo tax will do it all for you, just keep good expense records

[flowergarden]

If you can afford repairs on both properties and you could, if you had to, afford to pay both mortgages for a few months (in case you can't rent it or you get someone who doesn't pay the rent) then renting is easy. You can easily do the taxes on Quicken or it's about $250 to $350 to have your taxes done by a tax consultant. It's really about whether you have the personality to roll with the punches with renting or whether you get all stressed out. If you get all stressed out about people not taking care of the property as you did, or you don't like getting calls on Sunday at 5:00PM about the back up in the sink that needs to be fixed right now, or whatever, then you shouldn't be a landlord. However, why should you loose 25K on a property that if you just rented it out and maybe lost a bit of money now, you would be able to get back in 2 or 3 years?

BTW the way, I believe the rules are that after you turn the property into a rental property, you have 3 years to sell it so that you can claim the equity as your "primary" residence and not pay taxes on the equity. I think you have to have lived in the house 2 out of the last 5 years in order to not pay taxes when you sell.

It's stressful being a landlord if money is tight. However, it can be a great financial investment. Good luck.

[dman72]

Originally Posted by flowergarden

If you can afford repairs on both properties and you could, if you had to, afford to pay both mortgages for a few months (in case you can't rent it or you get someone who doesn't pay the rent) then renting is easy. You can easily do the taxes on Quicken or it's about $250 to $350 to have your taxes done by a tax consultant. It's really about whether you have the personality to roll with the punches with renting or whether you get all stressed out. If you get all stressed out about people not taking care of the property as you did, or you don't like getting calls on Sunday at 5:00PM about the back up in the sink that needs to be fixed right now, or whatever, then you shouldn't be a landlord. However, why should you loose 25K on a property that if you just rented it out and maybe lost a bit of money now, you would be able to get back in 2 or 3 years?

BTW the way, I believe the rules are that after you turn the property into a rental property, you have 3 years to sell it so that you can claim the equity as your "primary" residence and not pay taxes on the equity. I think you have to have lived in the house 2 out of the last 5 years in order to not pay taxes when you sell.

It's stressful being a landlord if money is tight. However, it can be a great financial investment. Good luck.

Thanks for your help.

I'm not worried about carrying the place for a little while. I'm not worried about having to do minor repairs. I'm more interested in the complexities of the tax implications. I don't think the property will appreciate past what we paid for it in 2-3 years. I'm interested in the fact that you can depreciate the property on you income tax return, reducing you tax hit for the first 5 years or so, but then having to pay up later.

[TomMoser]

Originally Posted by dman72

Thanks for your help.

I'm not worried about carrying the place for a little while. I'm not worried about having to do minor repairs. I'm more interested in the complexities of the tax implications. I don't think the property will appreciate past what we paid for it in 2-3 years. I'm interested in the fact that you can depreciate the property on you income tax return, reducing you tax hit for the first 5 years or so, but then having to pay up later.

When you sell an investment property you will pay a "depreciation recapture" tax in the year that you sell it. Currently, the rate is 25% of the amount of depreciation that you have taken.

[LIgirl74]

I know this may have nothing to do what you were asking about. BUT... I want to let you know, I am in the same boat as far as losing equity in my condo and it is on the market to sell and my husband and I are possibly taking a loss b/c we want to move forward to a house.

So, we thought about renting out the condo. I just hung up with my mortgage broker prior to seeing your question. I know she told me that if I own my condo as a rental, and want to move forward with a mortgage for my condo, b/c my husband and I would require PMI (not sure how much you would be putting down on your new home), we would have to get $2300 for rent on our condo...which honestly would never happen. She said PMI companies are giving a hard time these days to anyone who has a certain LTV ratio rate. I guess you would be okay with this if you were putting down 20% or more. I just wanted to give you a heads up with info I found out today b/c well, we are kind of in the same boat as you with the loss. BUT I'm hoping we will come out with just enough to payoff our mortgage and be free and clear of the condo. We figured out that with renting it out not enough to cover our mtg and to hold onto it until the market turns around, it would cost us about $5k per year and I guess it's better to just dump it.

Sorry if this has nothing to do with what you were asking or if the less than 20% down thing doesn't apply to you.

Good luck with whatever decision you make. I know it's tough for the condo market today!

[dman72]

Originally Posted by LIgirl74

I know this may have nothing to do what you were asking about. BUT... I want to let you know, I am in the same boat as far as losing equity in my condo and it is on the market to sell and my husband and I are possibly taking a loss b/c we want to move forward to a house.

So, we thought about renting out the condo. I just hung up with my mortgage broker prior to seeing your question. I know she told me that if I own my condo as a rental, and want to move forward with a mortgage for my condo, b/c my husband and I would require PMI (not sure how much you would be putting down on your new home), we would have to get $2300 for rent on our condo...which honestly would never happen. She said PMI companies are giving a hard time these days to anyone who has a certain LTV ratio rate. I guess you would be okay with this if you were putting down 20% or more. I just wanted to give you a heads up with info I found out today b/c well, we are kind of in the same boat as you with the loss. BUT I'm hoping we will come out with just enough to payoff our mortgage and be free and clear of the condo. We figured out that with renting it out not enough to cover our mtg and to hold onto it until the market turns around, it would cost us about $5k per year and I guess it's better to just dump it.

Sorry if this has nothing to do with what you were asking or if the less than 20% down thing doesn't apply to you.

Good luck with whatever decision you make. I know it's tough for the condo market today!

It has everything to do with what I was asking. I'm trying to pay down enough on the condo that we will be able to cover the remaining mortgage with rent...we're talking 1500-1600 a month once I get the piggy-back portion of the subprime paid off, which I'm making progress on.

We'd still have maintenance to cover, but that's an expense of ownership that can be written off along with property taxes. Even if we fall short of covering the total expense of the condo with rent, we have $0 credit card debt and stable incomes, and I won't be buying a house anywhere near what the calculators say we're qualified to buy, so if a mortgage company is going to deny my wife and I from buying a house...there are going to be a lot of unsold houses on LI, because we have above average income and pristine credit. I realize that anything you pay in mortgage, mtc and taxes above what you get in rent is an extra expense, but $5,000 in expense isn't that much considering that some people have that in car payments every year.

[LIgirl74]

Originally Posted by dman72

It has everything to do with what I was asking. I'm trying to pay down enough on the condo that we will be able to cover the remaining mortgage with rent...we're talking 1500-1600 a month once I get the piggy-back portion of the subprime paid off, which I'm making progress on.

We'd still have maintenance to cover, but that's an expense of ownership that can be written off along with property taxes. Even if we fall short of covering the total expense of the condo with rent, we have $0 credit card debt and stable incomes, and I won't be buying a house anywhere near what the calculators say we're qualified to buy, so if a mortgage company is going to deny my wife and I from buying a house...there are going to be a lot of unsold houses on LI, because we have above average income and pristine credit. I realize that anything you pay in mortgage, mtc and taxes above what you get in rent is an extra expense, but $5,000 in expense isn't that much considering that some people have that in car payments every year.

I hear you. Right now, my friend, who is a realtor, told me we could get anywhere from $1200 - $1600 in rent for our condo. Unfortunately, we owe to the mortgage & taxes per month, approx. $1740. So, let's say we could rent out for $1600, we'd still have to pay out of pocket, $140 to makeup for the diff in mortgage & rent pmt as well as $161 for our maint. Which isn't so bad! BUT I feel, if we can sell for $225k, and break even or wind up paying the transfer tax and a few other things out of pocket (let's say up to $5k), I think I personally would rather just be rid of the condo since my mortgage company will not give me PMI if I hold onto the condo. We paid $240k for our place and right now, it's on the market for $239k. So, yes, we would be taking a loss but in hopes we could totally pay off the mortgage and be done with it. My parents used to buy condo's, etc. for investment purposes but I personally feel, in my situation that if I purchase a home as well as hold onto this condo (whcih would be nice for years to come), I'd be concerned I wouldn't have enough money to fix the CAC or if another costly appliance stopped workign while owning a home. That's just me though.

If you decide to do this, I think it's a wise decision as long as you can afford everything. Also, if you decide to sell, don't wait too long b/c this is prime season and well, we are still on the market after 7 months! ughh! Sigh!

Oh yeah, we have amazing credit as well. Both are in the 800's and no debt. We have like $500 worth of credit card debt and no car loans and we were still told this by the mortgage broker. Times are really rough out there right now!

Good luck with whatever you decide to do.

[dman72]

Originally Posted by LIgirl74

I hear you. Right now, my friend, who is a realtor, told me we could get anywhere from $1200 - $1600 in rent for our condo. Unfortunately, we owe to the mortgage & taxes per month, approx. $1740. So, let's say we could rent out for $1600, we'd still have to pay out of pocket, $140 to makeup for the diff in mortgage & rent pmt as well as $161 for our maint. Which isn't so bad! BUT I feel, if we can sell for $225k, and break even or wind up paying the transfer tax and a few other things out of pocket (let's say up to $5k), I think I personally would rather just be rid of the condo since my mortgage company will not give me PMI if I hold onto the condo. We paid $240k for our place and right now, it's on the market for $239k. So, yes, we would be taking a loss but in hopes we could totally pay off the mortgage and be done with it. My parents used to buy condo's, etc. for investment purposes but I personally feel, in my situation that if I purchase a home as well as hold onto this condo (whcih would be nice for years to come), I'd be concerned I wouldn't have enough money to fix the CAC or if another costly appliance stopped workign while owning a home. That's just me though.

If you decide to do this, I think it's a wise decision as long as you can afford everything. Also, if you decide to sell, don't wait too long b/c this is prime season and well, we are still on the market after 7 months! ughh! Sigh!

Oh yeah, we have amazing credit as well. Both are in the 800's and no debt. We have like $500 worth of credit card debt and no car loans and we were still told this by the mortgage broker. Times are really rough out there right now!

Good luck with whatever you decide to do.

Thanks, good luck to you also.