Tax implication of negative cash flow from rental property

Not a CPA...but those would be passive losses. You would need other passive gains to offset. Can't take passive and offset it with active.

Transfer it into an LLC and file through your schedule E of your personal return. With the depreciation and losses you will get some tax advantage to it. Not a CPA.

Also, $2k a month of negative cash flow? Dude, that's a lot. You sure you're going to be cool stroking those checks every month? That's going to get old quick

Thanks for the suggestions guys. Looks like I creating an LLC under our family's trust is the way to go.

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Also, $2k a month of negative cash flow? Dude, that's a lot. You sure you're going to be cool stroking those checks every month? That's going to get old quick

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I hear you, but the amount of equity we have in it >$1M and the fact that it is in an area of California that's all-in on NIMBY and doesn't allow any new construction typically makes the property worth holding long term as we will never be able to afford another property in this area in the future if we move out and start making considerably less money elsewhere. We just got lucky we got the home when we did. Another reason we don't want to sell is that if we decide we ever want to come back, we will just come back to this house. If we never come back, wife and I will sell the home after we retire and it will be our golden egg in our old age. Anyway, it is all theoretical at this point. We have another 20 years to go before we retire.

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What kind of interest rate do you have on that thing?

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2.69%. 30-yr fixed.

You need to know what your taxable income would be not your cash flow.

Usually you can turn positive cash flow into a taxable loss thanks to depreciation but it shouldn’t be hard to figure out.

Basically the only differences would be the principal portion of your mortgage payment is not an expense, only the interest portion is. Then depreciation would be an expense but doesn’t effect cash flow.

Creating an LLC does not turn a passive activity into an active activity.

Schedule C isn’t for real property rentals

Mortgage principal is never deductible

It will be a passive activity. Under the assumption that your negative cash flow is a taxable loss…..Unless you can offset it with other passive income, it will be “suspended” and accumulate until you sell the property and will help you offset some of the gains from doing so. So, it can help you, but not on its own and not immediately.

Are AirBnBs allowed in the area? You can make killer cashflow doing that, and automate the “headache” via a property manager/cohost.

If not, consider renting out by the room instead to get to a higher rental total. Depending on the area of California, that can be a common solution to reach higher cash flow.

If you file it as a loss on your taxes, it does help your overall tax situation. You will just not be able to use it as income if you try to get another loan and qualify with it. Uncle Sam finds one way to get you

I’m in a similar position. I submit my loses in my rental properties - my CPA has informed me in the past that it doesn’t affect my personal filing. But the loses will be included when we sell the property and taxes are filed that tax year - I hope that makes sense.