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Tax Question -- Rental Income and Expenses
Posted on 1/5/12 at 7:30 am
Posted on 1/5/12 at 7:30 am
Ok here's the situation, I rented my house out last year and I can claim as much expenses....maybe a little more than the money I brought in rent.PLUS I have my mortgage interest on top of this..can I do either of the following options and which should I do
a. not claim the rental income, just prepare my taxes as normal, claim my normal deduction for mortgage interest and taxes
b. claim the rental income, then claim the loss, and claim the mortgage interest as a loss expense
Also a seperate question, concerning depreciation. I do not plan on renting the place forever, maybe a few years then either moving back in it or selling. Should I depreciate it any?
a. not claim the rental income, just prepare my taxes as normal, claim my normal deduction for mortgage interest and taxes
b. claim the rental income, then claim the loss, and claim the mortgage interest as a loss expense
Also a seperate question, concerning depreciation. I do not plan on renting the place forever, maybe a few years then either moving back in it or selling. Should I depreciate it any?
This post was edited on 1/5/12 at 7:42 am
4
Posted on 1/5/12 at 8:44 am to dillpickleLSU
From what I know, you can only deduct your expenses up to the amount of the income. This is considered passive. Also, you won't be able to deduct mortgage interest unless you lived in the home for a certain amount of days. Here is a link for you to read from the IRS. You can just go to their site and research this very easily,
LINK
LINK
Posted on 1/5/12 at 8:54 am to dillpickleLSU
I think you definitely need to claim the rental income less any expenses, including your mortgage interest. Any loss can be used to offset up to $25K in other income. This assumes that you are actively participating in managing the property, e.g., collecting rent, making repairs, selecting tenants.
See page 13 of THIS.
See page 13 of THIS.
This post was edited on 1/5/12 at 8:58 am
Posted on 1/5/12 at 8:56 am to dillpickleLSU
You need to file schedule e for your rental income and expenses. You can deduct a loss from this depending on your income level. You will need to depreciate the home over 27.5 years.
Posted on 1/5/12 at 9:25 am to tigeralum06
quote:
You need to file schedule e for your rental income and expenses. You can deduct a loss from this depending on your income level. You will need to depreciate the home over 27.5 years.
do I divide the value of the home by 27.5 and add this as an expense??
do I have to do this?
Posted on 1/5/12 at 10:21 am to dillpickleLSU
That would be your main depreciation account. If you make major repairs like a new roof or new a/c unit, you would have to set up a separate account for each of them with its own schedule according to the class of asset. I tried this for a few years and finally turned the whole thing over to an accountant. It's a monumental PIA.
Remember that any depreciation you take will be subtracted from your basis for capital gains purposes when you sell the property. You can get around the capital gains by converting it back to your primary residence by living in it for three years prior to selling it.
Remember that any depreciation you take will be subtracted from your basis for capital gains purposes when you sell the property. You can get around the capital gains by converting it back to your primary residence by living in it for three years prior to selling it.
Posted on 1/5/12 at 2:14 pm to dillpickleLSU
quote:
do I divide the value of the home by 27.5 and add this as an expense??
The value of the home only, you must deduct the land value as it is never depreciated.
quote:
do I have to do this?
If you don't you may get flagged for audit.
Posted on 1/5/12 at 7:37 pm to Quidam65
quote:
If you don't you may get flagged for audit.
so if he doesnt deduct an expense that he is entitled to then he may be flagged for audit?
mmkay
This post was edited on 1/5/12 at 7:39 pm
Posted on 1/6/12 at 7:47 am to Layabout
quote:
Remember that any depreciation you take will be subtracted from your basis for capital gains purposes when you sell the property. You can get around the capital gains by converting it back to your primary residence by living in it for three years prior to selling it
wouldn't the capital gains have to be more than 250K?
In this case I can depreciate away without worrying?
Posted on 1/6/12 at 8:46 am to dillpickleLSU
quote:
wouldn't the capital gains have to be more than 250K?
That exclusion only applies to the sale of your primary residence ($500K if married filing jointly). It doesn't apply to income property. That's why I said you would need to live in it for three years prior to selling it.
This post was edited on 1/6/12 at 8:48 am
Posted on 1/6/12 at 9:59 am to Layabout
the rule is that the house must have been your principal residence for at least 2 out of the 5 years prior to the sale. in this case you can exclude up to 250000 of gain if single or 500000 if married.
any depreciation taken on the house while in business use (in your case rental property) will be unrecaptured 1250 gain subject to a maximum tax rate of 25%.
any depreciation taken on the house while in business use (in your case rental property) will be unrecaptured 1250 gain subject to a maximum tax rate of 25%.
Posted on 1/6/12 at 10:14 am to dillpickleLSU
Conversion of a primary residence into a rental property is not an uncommon occurance. If you make the conversion during a tax year, then you have to separate expenses between the periods of personal use and rental property use. Any loss from the rental activity should be included in your gross income if you activiely participate in the rental activity, and your income is not above certain limits.
You must report the rental income in order to meet the legal requirement to file a complete and accurate return. As such, you should also report the expenses, and if they exceed your rental income you will have a loss that will be of tax benefit to you. Maybe not this year, but at some point in time.
Depreciation will effect the determination of gain/loss when you eventually dispose of the property by reducing your basis in the property. The determination of basis is done using the greater of depreciation allowed or allowable. Allowed depreciation is what you actually claimed, and allowable depreciation is what you could have claimed. So you may as well claim all of the depreciation allowable since the IRS will determine your basis that way.
Just as a general concept, anytime you can move an expense above the adjusted gross income line of your tax return you should do so. You generally get more bang for the buck that way. And claiming interest and property tax expenses as rental expenses moves them above the line.
You must report the rental income in order to meet the legal requirement to file a complete and accurate return. As such, you should also report the expenses, and if they exceed your rental income you will have a loss that will be of tax benefit to you. Maybe not this year, but at some point in time.
Depreciation will effect the determination of gain/loss when you eventually dispose of the property by reducing your basis in the property. The determination of basis is done using the greater of depreciation allowed or allowable. Allowed depreciation is what you actually claimed, and allowable depreciation is what you could have claimed. So you may as well claim all of the depreciation allowable since the IRS will determine your basis that way.
Just as a general concept, anytime you can move an expense above the adjusted gross income line of your tax return you should do so. You generally get more bang for the buck that way. And claiming interest and property tax expenses as rental expenses moves them above the line.
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