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Old 07-16-2007, 01:31 PM
 
Location: Santa Cruz Mtns, Calif.
1 posts, read 3,360 times
Reputation: 12

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Can anyone help? My husband and I are in disagreement about renting out a house we moved out of. The market is grim and we either need to come down on price (It is currently listed at 497,000 and should actually be, according to our agent, 470,000) or take off the market and rent it out. The house is in the Santa Cruz Mtns. I feel that it might not be worth renting out because of expense of repair and just normal wear and tear of renters. Our mortgage payment is about 1,800 a month and not sure we could get that much for rent. Plus, I learned from our accountant that you also pay 37% interest on your rental income. My husband still feels he needs to recoup lost mortgage and take house off market and rent for a year in hopes of better real estate market. Can anyone advise? On top of mortgage we also have a equity line on this house we are paying on. I am bad with numbers but overall it doesn't seem to be a good move. Also, what about the money you make when you sell after so much time, don't you pay taxes on that? We have been out of that house for a year this September. It took us 6 months to get it ready for the market. (Did the work ourselves on weekends). Any advise would be very helpful. Sorry this is so wordy.
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Old 07-16-2007, 02:25 PM
 
8 posts, read 36,388 times
Reputation: 14
sounds like you don't want to deal with the hassle of being a landlord, plus your rental income can not cover expenses (mortgage, property tax, insurance, repairs, vancancy), you accountant is wrong though, you don't automatically pay 37% on the rental income, in fact since you have a deficit, you can offset that loss and depreciation against your regular income on the tax return, you may get a tax break from rental loss

however, tell your husband the market may not recover in couple years, and if you lived in the house for 2 years in a 5 year period ending on the date of sale, you don't have to pay any tax on capital gain up to 250k single 500k per couple:

Washington DC CPA firm - Sale of your home tax questions (broken link)

so if you are qualified and have a good amount of gain, i would sell and pocket the gain tax free rather than dealing with the hassle of renting it out
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Old 07-16-2007, 08:17 PM
 
2,652 posts, read 8,161,417 times
Reputation: 1905
Yeah, your accountant is wrong. For tax purposes, you can take a depreciable loss on your home if it is a rental. Meaning, your house depreciates according to the IRS, and you can write that off. If you want to rent it out, get a CPA that specializes in Real Estate. Plus if you lived in the house for 2 of the last 5 years like the previous poster said, you won't have to pay capital gains tax on the sale of the house.
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Old 07-23-2007, 07:56 PM
 
Location: San Jose, CA
1,318 posts, read 3,338,049 times
Reputation: 765
If you don't think you can get more than $2550/month you should probably sell, if you take your equity and put it into a 6 month CD that is income you will be guaranteed to make, suppose at 470k, and you get 150k in equity, then that is at least 7500/year income.

To make the same income on the property you have to take your interest on the mortgage per month, plus property tax bill, plus homeowners insurance, plus maintenance expenses, and add that in as expenses, which I would guess would be around 1900/month. Then you have to rent at at least 625/month more than expenses, so $2525/month. Of course you have to do the calculation yourself since I don't know how much equity you have in your home, (i.e how much you can sell for - what you owe on your mortgage), and what part of your mortage bill goes to interest, what you pay for insurance and maintenance, and so on. But likely you will find it makes more sense to sell.
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