Condo – sell or rent out?

[(former)FormerSanDiegan]

Raybyrnes –

I am not a CPA, but have dealt with tax issues on rental property for almost a decade. I think you are mixing two concepts here.
On an investment property (which the IRS considers a passive activity) you can deduct travel expenses, cleaning and maintenance, utilities, insurance, taxes interest, points, and other items related to the management, care, maintenance, and financing of the rental property. Regardles of whether you are a real estate professional.

The “benefit” if you are a real estate professional is that you can deduct your losses, independent of the passive loss limit of 25K, which declines to zero if you make over 150K.

The IRS definition of being a real estate professioinal is more strict than “with a rental you could also loosely qualify as a real estate investment professional”. The IRS requires defines it as such :

Real estate professional. You qualified as a real estate professional for the tax year if you met both of the following requirements.

1. More than half of the personal you performed in all trades or businesses
during the tax year were performed in real
property trades or businesses in which you
materially participated.

2. You performed more than 750 hours of
services during the tax year in real property
trades or businesses in which you materially participated.

For prospective landlords, whether by choice or necessity, I recommend the following light reading:

http://www.irs.gov/pub/irs-pdf/p527.pdf

[Raybyrnes]

FormerSanDiegan

I am not a CPA either so I will go with what you said. The idea of classifying oneself as a real esate professional was introduced to me by a colleague who used it to reduce his specific tax liability.

I believe it would be a useful question to ask a CPA if I were sitting down for a consultation.

With respect to the qualification it is a fairly loose interpretation as the 750 hours. Is the time you are on piggington considered research.

[Raybyrnes]

FormerSanDiegan

I am not a CPA either so I will go with what you said. The idea of classifying oneself as a real esate professional was introduced to me by a colleague who used it to reduce his specific tax liability.

I believe it would be a useful question to ask a CPA if I were sitting down for a consultation.

With respect to the qualification it is a fairly loose interpretation as the 750 hours. Is the time you are on piggington considered research.

[Raybyrnes]

FormerSanDiegan

I am not a CPA either so I will go with what you said. The idea of classifying oneself as a real esate professional was introduced to me by a colleague who used it to reduce his specific tax liability.

I believe it would be a useful question to ask a CPA if I were sitting down for a consultation.

With respect to the qualification it is a fairly loose interpretation as the 750 hours. Is the time you are on piggington considered research.

[2008]

FormerSanDiegan –

You can write off more things on a rental. These include: depreciation, insurance, maintenance, and anything related to managing, marketing the rental, etc. Depreciation alone would likely be 10K per year in your case.

You deduct these against the rental income first. Any additional losses (up to 25K, if you make less than 100K) can be deducted against regular income.

I ran a few quick numbers looking at the Schedule E – and my tax write-off is a few hundred dollars more if I stay in the place, versus renting it out as the rental income is greater than what I can write off for depreciation+HOA.

So I’m back to the 70K I’ve already lost in value, plus any additional depreciation over the next 3 years.

[2008]

FormerSanDiegan –

You can write off more things on a rental. These include: depreciation, insurance, maintenance, and anything related to managing, marketing the rental, etc. Depreciation alone would likely be 10K per year in your case.

You deduct these against the rental income first. Any additional losses (up to 25K, if you make less than 100K) can be deducted against regular income.

I ran a few quick numbers looking at the Schedule E – and my tax write-off is a few hundred dollars more if I stay in the place, versus renting it out as the rental income is greater than what I can write off for depreciation+HOA.

So I’m back to the 70K I’ve already lost in value, plus any additional depreciation over the next 3 years.

[2008]

FormerSanDiegan –

You can write off more things on a rental. These include: depreciation, insurance, maintenance, and anything related to managing, marketing the rental, etc. Depreciation alone would likely be 10K per year in your case.

You deduct these against the rental income first. Any additional losses (up to 25K, if you make less than 100K) can be deducted against regular income.

I ran a few quick numbers looking at the Schedule E – and my tax write-off is a few hundred dollars more if I stay in the place, versus renting it out as the rental income is greater than what I can write off for depreciation+HOA.

So I’m back to the 70K I’ve already lost in value, plus any additional depreciation over the next 3 years.

[Bloat]

Likely a greater deduction,

As a homeowner your itemized deductions need to exceed the default standard deduction for a married couple ($10,300) before you see a benefit. You probably had Int/St.Taxes/RE Taxes totaling around $16k? (best guess), so the benefit would be a write off of the difference of $5700 (maybe $120/month savings for you?). Schedule E losses (rental property) reduces your top line income regardless of your deductions.

Many first time home buyers think they will get a big tax benefit, but with low starter interest rates and a low income they may not get any benefit at all.

[Bloat]

Likely a greater deduction,

As a homeowner your itemized deductions need to exceed the default standard deduction for a married couple ($10,300) before you see a benefit. You probably had Int/St.Taxes/RE Taxes totaling around $16k? (best guess), so the benefit would be a write off of the difference of $5700 (maybe $120/month savings for you?). Schedule E losses (rental property) reduces your top line income regardless of your deductions.

Many first time home buyers think they will get a big tax benefit, but with low starter interest rates and a low income they may not get any benefit at all.

[Bloat]

Likely a greater deduction,

As a homeowner your itemized deductions need to exceed the default standard deduction for a married couple ($10,300) before you see a benefit. You probably had Int/St.Taxes/RE Taxes totaling around $16k? (best guess), so the benefit would be a write off of the difference of $5700 (maybe $120/month savings for you?). Schedule E losses (rental property) reduces your top line income regardless of your deductions.

Many first time home buyers think they will get a big tax benefit, but with low starter interest rates and a low income they may not get any benefit at all.

[2008]

I’m single and my deductions last year were higher – primarily because my 80% loan is IO. 20% loan is P&I

[2008]

I’m single and my deductions last year were higher – primarily because my 80% loan is IO. 20% loan is P&I

[2008]

I’m single and my deductions last year were higher – primarily because my 80% loan is IO. 20% loan is P&I

[Bloat]

I’ve been looking at the post by “CMRJoe” (or maybe both of you) with similar numbers & situation, but he is married. Your deduction would be only $5150.

[Bloat]

I’ve been looking at the post by “CMRJoe” (or maybe both of you) with similar numbers & situation, but he is married. Your deduction would be only $5150.

[Author]

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