should we rent our current house so we can buy another?

[aneftp]

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?

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.

[North_Raleigh_Guy]

I would much rather take $2,000 to closing today rather than become a landlord. With a mortgage at $700 I'm assuming your house is in the $130K-$150K range. I'm a little surprised you have not seen any appreciation since 2006 since starter homes in nice areas appear to be doing ok in the Raleigh area. Two resales in my starter home neighborhood just sold for 3.5% and 4.5% more than I paid in 2006. That being said, since you haven't experienced any appreciation since 2006 I would not assume you will see appreciation over the next two years. Maybe you will, but maybe you wouln't.

If you really want to move I would sell your current house rather than become a landlord.

[bahiaboyz]

Pay the $2000 and move on........

[cleasach]

I'd been following a lot of posts that aneftp was writing about bringing a check to closing and could not believe that s/he was able to do that (pay such a huge amount at closing) and keep food down at the same time. I gotta hand it to you aneftp, that was one hell of a pill to swallow even though you're getting write offs.

I thought when the OP here said "I refuse...." that we were talking about the same ballpark. But $2,000? You're digging your heels in and refusing to pay $2k to get you into your most desired area? In this market? Your ticket to the area you want only costs $2k and you "refuse" to pay it? Yikes.

[aneftp]

Originally Posted by cleasach

I'd been following a lot of posts that aneftp was writing about bringing a check to closing and could not believe that s/he was able to do that (pay such a huge amount at closing) and keep food down at the same time. I gotta hand it to you aneftp, that was one hell of a pill to swallow even though you're getting write offs.

I thought when the OP here said "I refuse...." that we were talking about the same ballpark. But $2,000? You're digging your heels in and refusing to pay $2k to get you into your most desired area? In this market? Your ticket to the area you want only costs $2k and you "refuse" to pay it? Yikes.

Thanks, yeah it's a very hard pill to swallow. I am officially selling the home in Maryland next Friday July 31st. Yesterday I get an updated estimate and I have to wire 37K to closing just to cover the deal (I thought it was 30K initially) but it seems like Maryland has very high seller and buyer transaction costs. God, I hate that Democratically controlled state. Maryland has (I think) the 5th highest closing costs in the US. So my total loss now goes up to 137K. They have huge state transfer/stamp fees. But I don't see housing prices going up anytime in the next 3-5 years.

I do very well for a living so while it's a huge financial hit, I"m still young (in my 30s) and still have sizable cash reserves and already have more in my retirement account than most people in their 50s and 60s. Gotta love being self employed and being able to put the max money into retirement.

Like you said, I think potentially losing $2000 is a very small price to move the current home. While $2K is still a lot of money to most people. $2K in the overall real estate picture is nothing.

[beckycat]

Originally Posted by mjohnson185

It's in Raleigh, NC. In general the triangle has seen some appreciation and is projected to gain appreciation in the next 2 years. The neighborhood we want to move into is now selling at 2006 prices (they were all built in 2006) like us. Houses that sould be selling at 320,000 under normal 5% appreciation, are selling at 260,000. They are still building in that neighborhood and only have 10 lots left...they are selling like hotcakes. Of the 10 lots that are left, they have already sold 3 lots in the last month. We are only interested in the resales because they are better deals than the new ones going onto the lots. This is a very highly sought after and popular neighborhood. A new interstate is being built and will be finished in about 3 years and will be 1 mile from this neighborhood. They are very well built, custom, non cookie cutter homes that are rare to find these days. One of the resales that we liked sold in 5 days! Our neighborhood had a short sale about 4 months ago that brought our home prices down, plus you don't get much appreciation from a starter home in a lower price range to begin with.

I have to agree with you on this one. I'm trying to sell in FL to move to Raleigh and I feel if I have to wait a year or so Raleigh will be out of my price range. They never had the boom like other places, but the houses there where definately appreciating. The problem you may run into if you rent, the bank may not give you another mortgage. Anyhow, that's my situation even though we have excellent credit.