Any Real Estate experts?

[mattl]

Got a couple of questions, I know no real estate experts, hope there are some here. I bought a house to flip a while back, things were going well then life interrupted and delayed things - a lot.

Anyway as we all know the bottom dropped out of the market, and I can get nowhere near what I was planning on so I'm going to leasing the property for a few years. For tax purposes this is listed as my dad's primary residence, now it will be a rental. I guess interest will no longer be deductible, so my question is about depreciation.

How does that work? What is the basis to start from? I'll be getting $1600/mo if that has any implications, so income will raise almost $20,000 yr. Loosing the mortgage deduction and increasing income could be a big hit come tax time, any suggestions how to counter that?

 

[toggleswitch2]

Rhetorical quesitons:

Who us the owner, legally?

If you are, and mortgage interest payments/expesne are still deductible for second/vacation homes you may be in luck.

Save all your receipts, expenses you have associated with the rental property are generally deductions from income.

http://www.wwwebtax.com/income/rental_income.htm
http://www.irs.gov/faqs/index.html

 

[toggleswitch2]

See publication #527.

Please note that income taxes are filed on a "Federal income tax basis" which is nearly a cash basis of accounting; not an accrual basis. This makes it much easier for the small rental-propery owner to do their own taxes.

For a really good solution get yourself a copy of TurboTax software and play with various scenarios to see what is to you benefit. (Either 2009, if avaialable already or a prior year's)

Tax avoidance is LEGAL.
Tax evasion is NOT!

http://articles.moneycentral.msn.com/Common/Taxes/federal-tax-forms-and-publications.aspx

 

[mattl]

Thanks.

I have a lot of reading to do....

 

[andrewinorlando]

You can deduct all carrying expenses of the property including taxes, interest, marketing costs, insurance, etc., offset by the income the property produces, plus I believe a 4% depreciation factor (based on purchase price of the property) per year for as long as it is a rental property. The only thing that is not considered an expense is principal payments, since that actually builds equity for you.

When you sell the property down the road, you must true up the depreciation against profit made, so (Sales Price - Purchase Price + Depreciation Claimed) adjusted by any improvements made in the property, of course.

There are more facets to all of this to be found in the publications that Toggles referenced, but these are some of the basics.