Rental Property Tax question

[Deleted]

We are purchasing a new home and trying to decide if we should sell or rent the old one. With the high HOA, property taxes, and mortgage (higher payment because of 15 year fixed), we'd need to subsidize $1000/mo. If I look at the subsidy amount versus the reduction in principal over 5 years, it is almost break even (come out slightly ahead).. So I'd be betting on appreciation of the property versus investment gains if the house was sold and the $1000 subsidy was invested.. But anyway, that is not my question.

My question is around tax deductions. My wife and I are well over the $150k MAGI cut off, so does that mean that nothing is deductible on a yearly basis? We are not "in the industry", so these would be passive losses. I've never rented out property before, so I'm trying to understand how this works.

-Mark

[rovo]

This question may get better answers on the Tax Board.

[Gardening Grandma]

My wife and I are well over the $150k MAGI cut off, so does that mean that nothing is deductible on a yearly basis?

I'm not sure what this means. Rental property income and expenses are reported separately from regular itemizing. I don't think your AGI is a factor - I could be wrong.

You might want to post this quesiton on the tax board.

[Deleted]

Mar 14, 2011 13:33:25 GMT -5 rovo said:

This question may get better answers on the Tax Board.

Thanks, I hadn't noticed that section before

Mar 14, 2011 13:34:39 GMT -5 Gardening Grandma said:

My wife and I are well over the $150k MAGI cut off, so does that mean that nothing is deductible on a yearly basis?

I'm not sure what this means. Rental property income and expenses are reported separately from regular itemizing. I don't think your AGI is a factor - I could be wrong.

The government always wants to punish successful people From what I have read, passive loses are deductible up to $25,000 but there are income limits starting at $100,000. It seems that after $150,000, a person couldn't deduct anything. But it is still muddy to me and that is why I'm asking.

[Deleted]

Mar 14, 2011 13:48:23 GMT -5 @patstab said:

They have carried our losses forward and offset income against losses for current year.

But in regard to selling, I would never keep a property that has more outgo then income. We have rentals and just wouldn't do it. But that's just us.

I read that losses could be carried forward if MAGI is beyond $150k, but if there is never a "profit", what value would there be?

I'm weighing all options.. Right now, $1288 is reduced in principal every month. The property is only 3 years ago, so maintenance is minimal to nothing and should be for a while. So at $1000 subsidy, we'd still come amount ok if we assume house prices have bottomed (this is San Diego - seems they have) and that we couldn't make much higher returns investing elsewhere..

And of course there are the negatives like finding good renters and not having gaps in occupancy which would kill any of these calculations.

If we could deduct mortgage interest, taxes, etc, then I might lean toward renting, but right now I'm not.

[Deleted]

"I read that losses could be carried forward if MAGI is beyond $150k, but if there is never a "profit", what value would there be?"

Double check with the tax board but my CPA told me that we can off-set our "carry forwards" against capital gains. And it's not limited to the one property. Over the years we've collected 5 houses, four of which are in CA, two in San Diego County. We're carrying forward about $200k cap gains.

I would keep the property if you see yourself moving back to San Diego. I grew up there and still have family
living there although its been 25 years since I left. DH also has some roots and it looks like we will move my MIL to San Diego at some point.

Although I've had a fair amount of turnover with both properties, I've had really good luck with Craig's list. I was pleasantly surprised at the interest last summer in our LJ condo and think we'll do ok with our Oceanside house this summer. Yes I do manage them from Germany. It ain't rocket science but you do need to do your homework.

Where are you moving to? What's your professional background? Have you wanted to own rental property?

[phil5185]

Right now, $1288 is reduced in principal every month. The property is only 3 years ago, so maintenance is minimal to nothing and should be for a while. So at $1000 subsidy

It doesn't appear that you have a loss - if your principal is reduced at $1288/m and your cash-flow is a negative $1000/m, you have a $288/m profit.

At any rate, your rental income is reported on Schedule E so the interest paid, the depreciation, maintenance, repairs, is all on that form. It doesn't affect your standard deduction (or you itemized deductions) on your taxes.