crude tax question - if you are renting out your home for less than your mortgage...

[Anonymous]

Our home is under water and we had to rent it out and move in with my parents. We unfortunately couldn't rent for the same amount as the mortgage, so we have to make up the difference. Is there any sort of tax break for that? (I'm guessing not)

[Anonymous]

If you make more than 100k single or 150k married then no. they really need to remove or update this limit for inflation, it was set on the 80s.

[Anonymous]

The tax break is that you can deduct your mortgage interest. You can also claim depreciation on the property since it is now a rental property. But you can't claim a loss. Basically look at the difference between rent and mortgage as your cost to continue to own the property, presumably until the value increases and you can sell.

[Anonymous]

OP here, thanks. We make 200K HHI. Can we still deduct the mortgage interest and claim the depreciation?

[Anonymous]

Anonymous wrote:OP here, thanks. We make 200K HHI. Can we still deduct the mortgage interest and claim the depreciation?

Those assholes will sure as hell increase FICA with inflation but won't adjust deduction created in the 80s. Not sure why no one has pushed for them to increase the limit to the 300k limit like they have done with deductions.

"The $25,000 allowed passive loss is phased out if your modified adjusted gross income is between $100,000 and $150,000. You lose $1 of deduction for every $2 your income goes above $100,000."

[Anonymous]

Anonymous wrote:

Anonymous wrote:OP here, thanks. We make 200K HHI. Can we still deduct the mortgage interest and claim the depreciation?

Those assholes will sure as hell increase FICA with inflation but won't adjust deduction created in the 80s. Not sure why no one has pushed for them to increase the limit to the 300k limit like they have done with deductions.

"The $25,000 allowed passive loss is phased out if your modified adjusted gross income is between $100,000 and $150,000. You lose $1 of deduction for every $2 your income goes above $100,000."

Passive loss and mortgage interest deduction and depreciation on rental property are not the same thing. My income is way above $200k and we can deduct the mortgage interest on our second house. Yes it will be reduced starting in 2012, but that doesnt kick in until income is over $300k.

OP, turbo tax will walk you through the rental property tax situation. More reliable than advice here if you can't afford a tax advisor. You can deduct your expenses associated with renting - maintenance, commissions, etc. - so keep track of all that.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:OP here, thanks. We make 200K HHI. Can we still deduct the mortgage interest and claim the depreciation?

Those assholes will sure as hell increase FICA with inflation but won't adjust deduction created in the 80s. Not sure why no one has pushed for them to increase the limit to the 300k limit like they have done with deductions.

"The $25,000 allowed passive loss is phased out if your modified adjusted gross income is between $100,000 and $150,000. You lose $1 of deduction for every $2 your income goes above $100,000."

Passive loss and mortgage interest deduction and depreciation on rental property are not the same thing. My income is way above $200k and we can deduct the mortgage interest on our second house. Yes it will be reduced starting in 2012, but that doesnt kick in until income is over $300k.

OP, turbo tax will walk you through the rental property tax situation. More reliable than advice here if you can't afford a tax advisor. You can deduct your expenses associated with renting - maintenance, commissions, etc. - so keep track of all that.

He's renting at a loss so he can't claim it as a second home.

[Anonymous]

This is a passive activity, but under the "active participation" exception you can deduct:

You actively participated in a rental real estate activity if you (and your spouse) owned at least 10% of the rental property and you made management decisions that may count as active participation or arranged for others to provide services (such as repairs) in a significant and bona fide sense. Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions.
Maximum special allowance. The maximum special allowance is:
•$25,000 for single individuals and married individuals filing a joint return for the tax year,
•$12,500 for married individuals who file separate returns for the tax year and lived apart from their spouses at all times during the tax year, and
•$25,000 for a qualifying estate reduced by the special allowance for which the surviving spouse qualified.
If your modified adjusted gross income (MAGI) is $100,000 or less ($50,000 or less if married filing separately), you can deduct your loss up to the amount specified above. If your MAGI is more than $100,000 (more than $50,000 if married filing separately), your special allowance is limited to 50% of the difference between $150,000 ($75,000 if married filing separately) and your MAGI.

Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance

http://www.irs.gov/publications/p17/ch09.html#en_US_2011_publink1000171747

[Anonymous]

We were in a similar situation, and we're able to deduct. Get an accountant. It was the best decision we made.

[Anonymous]

OP here. Thanks again everyone. I'll follow up with an accountant

[Anonymous]

Anonymous wrote:The tax break is that you can deduct your mortgage interest. You can also claim depreciation on the property since it is now a rental property. But you can't claim a loss. Basically look at the difference between rent and mortgage as your cost to continue to own the property, presumably until the value increases and you can sell.

This is essentially right.

Use Schedule E to report your rental income and expenses such as depreciation and mortgage interest. I'm not sure if recently any legislation put a cap on mortgage interest deductions for rental properties - I doubt it, but check the Schedule E instructions for 2012 and also the IRS Publication for rental properties - it's like Ragu, it's in there.

You also need to do a Form 4562 to compute the depreciation (and you will need an accountant or software to get all this done).

You cannot, however, use any net loss on the place (like the $25,000 max allowance) to offset other income on your return due to your HHI being $300K. But note that disallowed rental losses can be carried forward to be used in future years, so keep copies of your tax returns. If nothing else, the losses can be used to offset taxable gain when you sell the place.

[Anonymous]

don't forget about depreciation of the your property

[Anonymous]

As a pp noted, be sure you keep track of all your expenses. We rent out a basement apartment and provide heat, electric, water, Directv, and wifi included as part of the rent. Every year I prorate our costs on these various things and give the info to my accountant to submit on our taxes. Plus any repairs or purchases of, say, new appliances.

Do realize that you could get a notice that you have to file business taxes. We'd been filing this on our personal income taxes and the District government found out after a few years and told us we had to file business taxes - which we do now. It's not much. Don't know how the District government found out - maybe their contractor went through our personal income taxes. Maybe they got our address from the Craig's List rental ad. Not sure but it's not a big deal.

[Anonymous]

All of the above are still only sort of correct.

Regardless of income you can deduct depreciation and mortgage interest. However, whether that can result in a negative ( in which case you could deduct it against ordinary income) is subject to an income restriction. If you are subject to the income restriction the deduction is not lost, but you have o carry it forward until you have rental income to offset it. For everyone, when you sell you pay a recapture tax on depreciation at a special flat tax rate of 25%.