Quote:
Originally Posted by misplaced1
Plus side is I believe if you have a second home as a rental and it sits empty you can write it off can't you?
Anyone know?
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Yes and No....it can get complicated with Rental properties and the type of income you earn.
If you are actively marketing the property as a rental and it sits empty, Yes those rental expenses (mortgage interest/HOA/taxes/utilities/maintenance) can be deducted as expenses.
However, you should have all your marketing documents in place if the IRS audits you.
Now comes the tricky portion. If you income is more than 100K a year, completely phased out at 150K a year, you cannot claim overall rental income loss againsts your regular income. If it's less than 100K a year, than you can claim it as a loss against ordinary income (for the current tax year)
But for those whose rental loss income is excluded by the IRS because of their higher incomes, all losses are added to overall cost basis.
Here's an example. Say I make more than 150K a year. In tax year 2007, I lost 12K in overall rental income. Per IRS laws, I cannot deduct those losses. In Tax Year 2008, I loss another 10K in rental income. I still cannot deduct those losses.
However, when I sell my house in tax year 2009. Those 12K and 10K losses that were excluded by the IRS, can be re-added to my overall cost-basis of my investment home. So if my cost basis of my home was 600K in 2007 (adjusted time I started renting out the home). Now I sell the home for 500K.
I have a net loss of 100K. However, I get to add back those 12K and 10K rental income loss because they were originally excluded. So my net loss becomes 122K loss which I get to deduct...plus you have to re-add back an depreciation deductions ...it's gets complicated.
Than everything is thrown out the window on overall losses if you are a professional real estate investor. You can deduct any rental losses in the same tax year if you can claim professional real estate status (must be actively involved I think more than 700-750 hours for the entire year.