Reply to Is renting a place out worth it considering the Depreciation Recapture Tax?

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[quote=Anonymous][quote=Anonymous]Why I would you let a tax stop you from making money?[/quote]

For some reason, I think this is a serious question, so I'll answer it.  How about because the tax [u]does [/u]stop you from making money?  You realize that the tax is money that would otherwise be in your pocket, and there is such a thing a "opportunity cost?"  If Uncle Sam wants to take away profit from one activity, I'll go find something else to do with my capital, thank you very much.

We considered keeping our old house and renting it out, but after we calculated the tax consequences, we quickly realized that it was a lose/lose.  At least you're in a position to make a profit.  Those who can only rent at loss get a double whammy.  Unless you're a "real estate professional" you can't deduct losses from your other income, and, when you sell, you must deduct depreciation from your basis, even if you weren't able to actually get the benefit of the depreciation while you were renting.  If you're underwater and can't rent for more than your mortgage, if you can do it at all, you're better off taking the financial hit up front, than doing a slow bleed by renting at a loss.  Not to mention if you trigger AMT, which you probably will if you're trying to deduct interest from your current home as well as the costs of the rental, in which case you effectively won't be able to use any of the deductions, anyway.

Particularly with all of the hassles of renting, I don't know why anyone does it unless they bought the property in 1965 for nothing and very little in the way of expenses and no basis to start with. [/quote]

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