Claiming tax on rental property

[Cflames_12.5]

Can someone tell me the pros and cons of claiming a rental property on taxes. The wife and I rent out our house basically just to carry the mortgage. It has come to our attention that we could be claiming this and possibly getting a big tax return to help. I'm really not an expert on this at all. The whole situation just kind of happened in being a land lord.

Do I have to claim?

If I don't claim could I get in trouble? I should mention my family rents it does that matter?

Is there any financial gain claim this? The person who told me about this said I should be claiming this and putting the tax return right on the mortgage.

Thanks for any advice

[Frequitude]

Pro: it's the law?

Just send a PM to Locke. He'll take care of you.

edit: it's the law if you're making a profit net of mortgage interest, expenses and depreciation if you want to claim that.

[Weitz]

Well if you are getting income you are supposed to report it and pay tax on it. you can be audited and back taxed if you don't.

There are things you can write off in regards to it but I am not an accountant.

[wontondestruction]

The interest on your mortage will be tax deductable if it is a rental propery, so to is any expenses you have put into the property.

[Regorium]

There's no benefit to claiming your rental income other than the fact that it's the law. The reason being there's almost no chance that your rental income is lower than your expenses related to the rental. So you'll have extra income that you'll pay tax on.

If you want to do a cash only under the table thing with your tenant that's your prerogative.

[Frequitude]

Originally Posted by Regorium

There's no benefit to claiming your rental income other than the fact that it's the law. The reason being there's almost no chance that your rental income is lower than your expenses related to the rental. So you'll have extra income that you'll pay tax on.

If you want to do a cash only under the table thing with your tenant that's your prerogative.

And even if expenses somehow exceed rental revenue, I don't think you can write the loss off against other revenue like job wages. Could be wrong though. Again, paging Locke.

[Pliddy]

If you ever want to borrow against your equity, you will have to show your tax returns with the revenue property on it, not a big deal if you have the minimum down, but if you have 50% + paid off it's nice to include it in your net worth

[OMG!WTF!]

I was getting the impression from the original post that you are renting out part of the house you live in. If that is the case there are some different rules. Mainly not all of your mortgage interest is deductible. Your other bills are also only partly deductible based on the percentage of your house dedicated to rental space.

I'm not sure but I think it also changed the way you deal with the sale of your house. Not all would be principal residence. That could be bad for you.

I'm just guessing but I'd say you'd be one in a thousand if you claimed rental income from relatives living in your house. But you for sure should do it.

[Cflames_12.5]

Originally Posted by Frequitude

And even if expenses somehow exceed rental revenue, I don't think you can write the loss off against other revenue like job wages. Could be wrong though. Again, paging Locke.

Locke PM'd already. Thanks.

[Cflames_12.5]

Originally Posted by OMG!WTF!

I was getting the impression from the original post that you are renting out part of the house you live in. If that is the case there are some different rules. Mainly not all of your mortgage interest is deductible. Your other bills are also only partly deductible based on the percentage of your house dedicated to rental space.

I'm not sure but I think it also changed the way you deal with the sale of your house. Not all would be principal residence. That could be bad for you.

I'm just guessing but I'd say you'd be one in a thousand if you claimed rental income from relatives living in your house. But you for sure should do it.

It's the whole house.

[OMG!WTF!]

Originally Posted by Cflames_12.5

It's the whole house.

Oh so you have two houses here? One you live in and one you just decided to rent?

[Cflames_12.5]

Originally Posted by OMG!WTF!

Oh so you have two houses here? One you live in and one you just decided to rent?

Yes long story but in laws needed help so we moved and rented our house. But our names our on 2 mortgage payments. I should also mention seems very important now. I have been renting my house for about 6 years. So I'm probably screwed this tax year.

[Locke]

Originally Posted by Regorium

There's no benefit to claiming your rental income other than the fact that it's the law. The reason being there's almost no chance that your rental income is lower than your expenses related to the rental. So you'll have extra income that you'll pay tax on.

If you want to do a cash only under the table thing with your tenant that's your prerogative.

This is not entirely true, it depends on the factors surrounding the Mortgage Interest. Mortgage Interest is front-loaded, your first few years into a new mortgage is heavily weighted to interest versus principal and as such, depending on the other factors, a rental could be generating a tax-loss.

Further, if its an older house and required fairly extensive renovations to make rentable some of those are also deductible.

Or, if the previous tenant trashed the hell out of the place before they moved out, some of those repair expenses are deductible as well.

Originally Posted by Frequitude

And even if expenses somehow exceed rental revenue, I don't think you can write the loss off against other revenue like job wages. Could be wrong though. Again, paging Locke.

Negative, rental income/loss is treated as normal income. Any loss on a rental property can be deducted against normal salaried income and generate a loss leading to a refund.

Its because of this that the rules surrounding rentals are so sticky.

Originally Posted by Cflames_12.5

Yes long story but in laws needed help so we moved and rented our house. But our names our on 2 mortgage payments. I should also mention seems very important now. I have been renting my house for about 6 years. So I'm probably screwed this tax year.

It all depends on the circumstances, but if you've been renting it for about 6 years I'd wager that you're past the initial heavy mortgage interest phase and would likely be generating a taxable profit.

Thats not to say thats the case, like I said it all depends on the specifics for all I know you're renting out 'Professor Xavier's School for the Gifted' and it's been destroyed several times and you possess some significant tax-deductible losses as a result.

But typically people with rental properties flip them after 4-5 years or engage in Equity transfers to keep those front-loaded interest deductions coming or re-finance with one or more other rentals.

[MillerTime GFG]

Originally Posted by Locke

This is not entirely true, it depends on the factors surrounding the Mortgage Interest. Mortgage Interest is front-loaded, your first few years into a new mortgage is heavily weighted to interest versus principal and as such, depending on the other factors, a rental could be generating a tax-loss.

Which is why it's important to have the proper mortgage on your rental. For example, having a HELOC (home equity line of credit) allows you to pay interest-only, therefore keeping your deductible interest the same year over year, rather than steadily declined on a traditional amortized mortgage. If that's not an option, stretching out your amortization as long as possible has similar results.

Maximize cash flow and maximize tax benefits.

[llwhiteoutll]

I'm guessing that this would still apply for a roommate situation?

Report rental income, then deduct half of mortgage interest, utilities?

[Locke]

Originally Posted by llwhiteoutll

I'm guessing that this would still apply for a roommate situation?

Report rental income, then deduct half of mortgage interest, utilities?

Correct, just try and be as accurate as possible on the 'personal usage' percentage. Half is usually standard though as you have your rooms and then common areas.

[llwhiteoutll]

Originally Posted by Locke

Correct, just try and be as accurate as possible on the 'personal usage' percentage. Half is usually standard though as you have your rooms and then common areas.

I was going to exclude the bedrooms from the common areas and split the square footage 50/50. Add in 100% of the rented room's square footage and use that number to arrive at a percentage split.

I can split the property tax as well, right?

[Locke]

Originally Posted by llwhiteoutll

I was going to exclude the bedrooms from the common areas and split the square footage 50/50. Add in 100% of the rented room's square footage and use that number to arrive at a percentage split.

I can split the property tax as well, right?

You split everything. You input all of your costs other than anything thats strictly personal, theres jokes galore to be made there but I'm letting them slide just this once, and then deduct the the percentage of them that applies to the rental income.

[llwhiteoutll]

Cool, thanks Locke.

[Locke]

Originally Posted by llwhiteoutll

Cool, thanks Locke.