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How can a tax deduction help? Isn't it just a rebate on money spent? If you have $12,000 in deductible interest and you get back $4,000 didn't you still lose $8,000 where as if you would have put in the cash you don't have the $12,000 expense at all. From cash flow perspective, not only will you have to pay down principal on the loan, you have to pay income taxes on that principal. You are either going to give the money to the bank as interest or to the IRS as Income taxes.
You don't understand. You are looking at the issue as a homeowner deducting your INTEREST. As a landlord you deduct the ENTIRE MORTGAGE PAYMENT, interest, principal, cat and kaboodle.
You don't understand. You are looking at the issue as a homeowner deducting your INTEREST. As a landlord you deduct the ENTIRE MORTGAGE PAYMENT, interest, principal, cat and kaboodle.
Get it? Capiche?
Yes I don't understand which is why I ask. Got it, so you only get taxed on the difference. Do you use schedule E or as K-1
I haven't filed my first year yet. Too soon to answer. I have an excellent, seasoned CPA.
Rental house interest is not treated like homeowner's interest. In homeowner's you get to deduct the interest portion from your income taxes.
As a rental you deduct the entire mortgage payment, interest + principal, and also depreciation, but you are subject to capital gains taxes when you sell your rental.
Look at this way: your entire mortgage payment principal plus interest is an expense. Depreciation is an expense. But when you sell your property you recapture these expenses in your capital gains calculations. I'm not sure if I'm explaining this right. You need a CPA, not me.
You should consult a CPA. I have only a rough understanding of the issues.
I'll support the folks in FL claiming over 2% ROI/month. I do the same thing in Jax. Small SFRs purchased and rehabbed for 45-60k that rent ~$1000. And actually there are people who do much better on "cash-flow" but they're in areas that aren't very desirable or section 8. Ours are in neighborhoods that are gentrifying and we expect to see some decent appreciation (%-wise) in the years to come. Jax is a great market for this and I suspect other parts of FL as well.
I don't understand how many of the people in this topic don't understand that having a mortgage is an advantage in terms of income taxes, because the money you pay to your mortgage is tax deductible as a business expense.
My business would not work without the tax deduction.
Because you're paying $10,000 to the bank to get $2,500 from the government
I haven't filed my first year yet. Too soon to answer. I have an excellent, seasoned CPA.
Rental house interest is not treated like homeowner's interest. In homeowner's you get to deduct the interest portion from your income taxes.
As a rental you deduct the entire mortgage payment, interest + principal, and also depreciation, but you are subject to capital gains taxes when you sell your rental.
Look at this way: your entire mortgage payment principal plus interest is an expense. Depreciation is an expense. But when you sell your property you recapture these expenses in your capital gains calculations. I'm not sure if I'm explaining this right. You need a CPA, not me.
You should consult a CPA. I have only a rough understanding of the issues.
So cash buyers should get a 3-month "mortgage" so they can deduct the whole property? Seems like somebody would've invoked this loophole if that were so, as long as they have other rental properties and enough income to make that deduction valuable.
Originally Posted by Lovehound I don't understand how many of the people in this topic don't understand that having a mortgage is an advantage in terms of income taxes, because the money you pay to your mortgage is tax deductible as a business expense.
My business would not work without the tax deduction.
Quote:
Originally Posted by ncole1
Because you're paying $10,000 to the bank to get $2,500 from the government
It can be a puzzlement....
(A) I give the bank a dollar. The tenant gives me a dollar. The government gives me 25 cents, but only if I have a good job. I have almost no money tied up in the property.
OR
(B) The tenant gives me a dollar. I give the government 25 cents. My money is tied up in real estate.
We used model (A) for a number of years and the cash flow was very low. Repairs, etc.
But when we had the property long enough and model (B) showed up the cash flow increased. We don't own many properties and the money is good.
What happens to a lot of people is they start with model (A) and find out they are not making very much. So they buy more real estate. Sometimes that creates enough cash flow to make it worthwhile. And sometimes they find out that owning a bunch or rental property is a biiiiiig pain for them, and they get out.
FWIW: I know a young man whose family owns rental property - lots of it. I asked him how much property they owned and he told me - no kidding - that they get 2500 rent checks a month. 2500.
I haven't filed my first year yet. Too soon to answer. I have an excellent, seasoned CPA.
Rental house interest is not treated like homeowner's interest. In homeowner's you get to deduct the interest portion from your income taxes.
As a rental you deduct the entire mortgage payment, interest + principal, and also depreciation, but you are subject to capital gains taxes when you sell your rental.
Look at this way: your entire mortgage payment principal plus interest is an expense. Depreciation is an expense. But when you sell your property you recapture these expenses in your capital gains calculations. I'm not sure if I'm explaining this right. You need a CPA, not me.
You should consult a CPA. I have only a rough understanding of the issues.
You do NOT get to deduct the principal payment from your taxes, only interest, insurance and property taxes, as well as depreciation. I see that you have not filed your first year yet, but you will soon learn that this is not true at all. I'm not even sure where you got this from, I've never seen this online anywhere saying that you can deduct principal payments.
As a seasoned landlord, I know better, and frankly, considering how new you are to this, you are right, people should not be listening to you but a CPA or someone else who actually has been doing this for a while.
Not all rental properties are subject to capital gains tax. There are exceptions such as if you lived in the house for 2 years, you can rent it out for 3 years then sell it without capital gains. You can also rent it out longer than 3 years then move back into it to stay within the 2/5 rule. You can also do a 1031 exchange which is essentially selling the house and using a broker who holds the funds and then using the money to buy another like kind house within 180 days.
Would rather buy a $300,000 home that will increase in value and can stay rented than a $50,000 home that is hard to rent and decreasing in value.
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