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(former)FormerSanDiegan
ParticipantHistorically, in high inflation environments the price of hard assets goes up. Real estate is a hard asset. So is gold.
If the current dollar decline results in increased inflation, I would expect that the remaining 30-40% or so price decline in San Diego could consist of half due to inflaiton and half due to nominal price declines.
What leads one to conclude that a declining dollar and rampant inflation would put downward pressure on real estate prices. I do not understand the logic of those who hold this view. Is there some sort of mass cognitive dissonance going on ?
ParticipantRaybyrnes –
With respect to the qualification it is a fairly loose interpretation as the 750 hours. Is the time you are on piggington considered research.
Probably. That would be an easy way to rack up the 750 hours.
The other problem is that RE has to be your primary line of work.So, I think people who do not otherwise have full-time positions (or those who work in cash jobs) could more easily find a way to justify to be classified as a RE professional. The other loophole is that if you are married, just one of you has to be a RE professional. Most people who are full-time W-2 employees in other lines of work would be excluded.
ParticipantRaybyrnes –
With respect to the qualification it is a fairly loose interpretation as the 750 hours. Is the time you are on piggington considered research.
Probably. That would be an easy way to rack up the 750 hours.
The other problem is that RE has to be your primary line of work.So, I think people who do not otherwise have full-time positions (or those who work in cash jobs) could more easily find a way to justify to be classified as a RE professional. The other loophole is that if you are married, just one of you has to be a RE professional. Most people who are full-time W-2 employees in other lines of work would be excluded.
ParticipantRaybyrnes –
With respect to the qualification it is a fairly loose interpretation as the 750 hours. Is the time you are on piggington considered research.
Probably. That would be an easy way to rack up the 750 hours.
The other problem is that RE has to be your primary line of work.So, I think people who do not otherwise have full-time positions (or those who work in cash jobs) could more easily find a way to justify to be classified as a RE professional. The other loophole is that if you are married, just one of you has to be a RE professional. Most people who are full-time W-2 employees in other lines of work would be excluded.
ParticipantI 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.
Not sure I completely follow.
Did you include the interest on the loan, the property taxes and the insurance ? These add up to considerably more than the rent, since you said you would be negative 500-700 per month. Add the HOA and depreciation and you are looking at a tax loss of probably 1200-1500 per month.
Sure you’re actual tax write off might be a bit less than if you lived in it. But, do not isolate payment of taxes as a single consideration. Compute all expenses after taxes for whatever scenarios you are considering.
E.g. – If you live in the unit and continue to pay 2000 per month and 1700 is deductible, living in the unit might cost you $1400 per month after taxes (assume 35% in tax relief, might be less). If you rent it out for $1K per month, and you have a tax loss of 1K per month (including depreciation), you have an after-tax negative cash flow of about 700 minus taxes on 1K, let’s say $350. So your after tax monthly carrying costs are 350 per month.
Again, consider everything (cash in, cash out, including income and taxes) for a complete picture. Sure you would have a somewhat lower tax break because of the 1K per momth income. But don’t ignore the fact that you would be getting the additional 1K per month of income.
Also, I want to emphasize that if your hold-and-rent strategy is based on trying to sell within the next 3 years, you might as well sell it today.
ParticipantI 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.
Not sure I completely follow.
Did you include the interest on the loan, the property taxes and the insurance ? These add up to considerably more than the rent, since you said you would be negative 500-700 per month. Add the HOA and depreciation and you are looking at a tax loss of probably 1200-1500 per month.
Sure you’re actual tax write off might be a bit less than if you lived in it. But, do not isolate payment of taxes as a single consideration. Compute all expenses after taxes for whatever scenarios you are considering.
E.g. – If you live in the unit and continue to pay 2000 per month and 1700 is deductible, living in the unit might cost you $1400 per month after taxes (assume 35% in tax relief, might be less). If you rent it out for $1K per month, and you have a tax loss of 1K per month (including depreciation), you have an after-tax negative cash flow of about 700 minus taxes on 1K, let’s say $350. So your after tax monthly carrying costs are 350 per month.
Again, consider everything (cash in, cash out, including income and taxes) for a complete picture. Sure you would have a somewhat lower tax break because of the 1K per momth income. But don’t ignore the fact that you would be getting the additional 1K per month of income.
Also, I want to emphasize that if your hold-and-rent strategy is based on trying to sell within the next 3 years, you might as well sell it today.
ParticipantI 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.
Not sure I completely follow.
Did you include the interest on the loan, the property taxes and the insurance ? These add up to considerably more than the rent, since you said you would be negative 500-700 per month. Add the HOA and depreciation and you are looking at a tax loss of probably 1200-1500 per month.
Sure you’re actual tax write off might be a bit less than if you lived in it. But, do not isolate payment of taxes as a single consideration. Compute all expenses after taxes for whatever scenarios you are considering.
E.g. – If you live in the unit and continue to pay 2000 per month and 1700 is deductible, living in the unit might cost you $1400 per month after taxes (assume 35% in tax relief, might be less). If you rent it out for $1K per month, and you have a tax loss of 1K per month (including depreciation), you have an after-tax negative cash flow of about 700 minus taxes on 1K, let’s say $350. So your after tax monthly carrying costs are 350 per month.
Again, consider everything (cash in, cash out, including income and taxes) for a complete picture. Sure you would have a somewhat lower tax break because of the 1K per momth income. But don’t ignore the fact that you would be getting the additional 1K per month of income.
Also, I want to emphasize that if your hold-and-rent strategy is based on trying to sell within the next 3 years, you might as well sell it today.
ParticipantRaybyrnes –
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:
ParticipantRaybyrnes –
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:
ParticipantRaybyrnes –
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:
ParticipantBloat – regarding tax benefit from write-off as a primary residence owner (mortgage interest and taxes) versus rental income loss ( up to 25K)….are you saying that I can achieve a comparable or even greater tax deduction via rental loss as long as it does not exceed the 25K?
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.
This 25K limit decreases by $1 per each dollar you make over 100K. It goes to zero at 150K.
Any losses you cannot deduct are carried forward for the next tax year as a carryover loss. You can use these in the future or take all your carryover losses when yo dispose of the property.
ParticipantBloat – regarding tax benefit from write-off as a primary residence owner (mortgage interest and taxes) versus rental income loss ( up to 25K)….are you saying that I can achieve a comparable or even greater tax deduction via rental loss as long as it does not exceed the 25K?
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.
This 25K limit decreases by $1 per each dollar you make over 100K. It goes to zero at 150K.
Any losses you cannot deduct are carried forward for the next tax year as a carryover loss. You can use these in the future or take all your carryover losses when yo dispose of the property.
ParticipantBloat – regarding tax benefit from write-off as a primary residence owner (mortgage interest and taxes) versus rental income loss ( up to 25K)….are you saying that I can achieve a comparable or even greater tax deduction via rental loss as long as it does not exceed the 25K?
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.
This 25K limit decreases by $1 per each dollar you make over 100K. It goes to zero at 150K.
Any losses you cannot deduct are carried forward for the next tax year as a carryover loss. You can use these in the future or take all your carryover losses when yo dispose of the property.
ParticipantWho knows, could be 5 years could 15 years. That is the problem with RE right now. The risk of it being illiquid for long time is too high given the current macro-econ picture.
I agree it could be a very long time. At 12 months supply or more methinks RE is already illiquid. My guess is that those considering selling right now in San Diego will take up to a year to sell their property and will be selling about 15% below what they think today’s market value is.
I would also venture to guess that those closing escrow one year from now will be within 10% of the market bottom in terms of price.
Just my opinion. -
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