Rental property and taxes

[Anonymous]

We are looking at renting out our townhouse while relocating out of state and while we want to consult an accountant, I wanted to see if any one has done this and how it impacted their taxes. We make 200k roughly.

[Anonymous]

It completely depends how you do it. I have it as a separate company. I created the company and keep track of all expenses which off sets the income.

[Anonymous]

you will pay more tax. not sure what your question is.

[Anonymous]

Rent you receive from the rent will be added to your income and taxed accordingly. You can deduct expenses, including mortgage interest and property taxes you pay for the rental and other associated operating expenses. You can depreciate the property and other capital expenses (such as improvements to the property).

[Anonymous]

Like a previous poster said, open up a separate bank account and company for the property. You can deduct travel expenses to and from the property, any repairs, replacement of carpets etc, maintenance, and depreciation. This should more than offset any profits you would make on paper. This your net tax burden may just even out.

[Anonymous]

Anonymous wrote:you will pay more tax. not sure what your question is.

With depreciation and such, you typically won't make a profit on your rental income, but you also can't deduct your property taxes and mortgage interest from your W2 income anymore. You will have to file a schedule C, but turbo tax makes it easy.

[Anonymous]

Anonymous wrote:Like a previous poster said, open up a separate bank account and company for the property. You can deduct travel expenses to and from the property, any repairs, replacement of carpets etc, maintenance, and depreciation. This should more than offset any profits you would make on paper. This your net tax burden may just even out.

I'm confused by this last sentence. You don't just get taxed on the profit. You get taxed on the income. Even if you have zero profit, you are paying taxes on the income . I could be misunderstanding something though.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Like a previous poster said, open up a separate bank account and company for the property. You can deduct travel expenses to and from the property, any repairs, replacement of carpets etc, maintenance, and depreciation. This should more than offset any profits you would make on paper. This your net tax burden may just even out.

I'm confused by this last sentence. You don't just get taxed on the profit. You get taxed on the income. Even if you have zero profit, you are paying taxes on the income . I could be misunderstanding something though.

You get taxed on the net income.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Like a previous poster said, open up a separate bank account and company for the property. You can deduct travel expenses to and from the property, any repairs, replacement of carpets etc, maintenance, and depreciation. This should more than offset any profits you would make on paper. This your net tax burden may just even out.

I'm confused by this last sentence. You don't just get taxed on the profit. You get taxed on the income. Even if you have zero profit, you are paying taxes on the income . I could be misunderstanding something though.

No, you are allowed to deduct the expenses. Example:

Rental brings in 24000 of rent (2k month of rent)

Your expenses are 24000 that year (new roof, new deck, new pool, new appliances, etc). You're essentially not paying taxes. You'll also start depreciating certain things, too. You can also write off milege to/from rental.

You don't pay tax on the 24000 of rent.

[Anonymous]

If you're home is in DC you also lose the homestead exemption on your property taxes. Make sure you inform the now and start paying extra, because the penalties and interest add up.

Said someone who thought the DC government wouldn't ever catch her.

[Anonymous]

Just remember that any depreciation is subject to a 25% recapture tax when you sell the house. The capital gains exclusion does NOT wipe this out.

[Anonymous]

No need for a separate company or bank account. It's pretty easy. Just make an Excel spreadsheet to track incomiong and outgoing expenses, and categorize them, then you report it on Schedule E on your tax return.

Incoming is pretty simple -- the incoming rent. You'll have cancelled checks and a lease agreement if it's ever in question -- no need for a separate bank account.

Outgoing would be:
- Taxes
- HOA fees
- Maintenance
- Interest (get this from your 1098 from your lender)
- Insurance
- Depreciation (a tax program will calculate this)

I've had 2 rental properties fro 20 years now. I use the standard Turbotax and it works fine. It takes me less than 10 minutes at tax time, mainly because every tiem I have an expense, I put it in the Excel sheet and can just pull all the data from there. Then I keep a folder with a copy of the receipts just in case I'm audited.

[Anonymous]

Anonymous wrote:you will pay more tax. not sure what your question is.

Not necessarily. Depends on your income vs expenses. I never had positive revenue on my rental thanks to depreciation. You can't deduct the loss from your taxes until you sell though.

[Anonymous]

Should be positive net income not positive revenue.

[Anonymous]

Anonymous wrote:

Anonymous wrote:you will pay more tax. not sure what your question is.

With depreciation and such, you typically won't make a profit on your rental income, but you also can't deduct your property taxes and mortgage interest from your W2 income anymore. You will have to file a schedule C, but turbo tax makes it easy.

Its Schedule E