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Can I take an expense on my taxes....

Discussion in 'Other Off Topic Forum' started by Edward 96GTS, Jan 10, 2004.

  1. Edward 96GTS

    Edward 96GTS F1 Rookie

    Nov 1, 2003
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    if the rent on the condo I own does not cover the monthy payment? For example, I was told by a n MBA friend that if the condo only rents for $1k/month but the cost is $2k /mo that I can expense the difference, IF, I actively manage it. True? Please define active management.
    TIA
     
  2. PeterS

    PeterS Three Time F1 World Champ
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    Edward..It makes no difference if you manage it or not. Your income is $1000 on the rent. Your expense is $2000. You will claim the $12K a year as income while your write off the entire payment, which is more. Lets say that 95% of the 2K is interest, you will have a deduction of around $12K. PLUS! You get to take depreciation on the property and deduct expenses for maintenance and management fees.
     
  3. Edward 96GTS

    Edward 96GTS F1 Rookie

    Nov 1, 2003
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    Peter,
    So if I have an personal income of $5ok/year, the loss of $12k reduces my income to $38k/year?
     
  4. PeterS

    PeterS Three Time F1 World Champ
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    No, you have an income of $62K a year.
     
  5. PeterS

    PeterS Three Time F1 World Champ
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    Correction on my post. Your interest deduction (95% interest as my example was) is around $22.8K of the $24K.
     
  6. CraigFL

    CraigFL Formula Junior

    Jan 17, 2001
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    Edward...

    I'm far from a tax expert but your MBA friend may be talking about active/passive ownership as it pertains to a corporation owned business. Is the condo owned by you personally or thru a S Corp owned by you? This is where it may make a difference...
     
  7. BWS550

    BWS550 Wants to be a mod

    Apr 1, 2002
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    BRUCE WELLINGTON
    EDWARD...

    ALSO FORM A SMALL REAL ESTATE CORP WITH YOUR RENTALS ..EX. EDWARD R.E., LLC.......THE LLC PART WILL PROTECT YOU AND YOUR PERSONAL BELONGS, SO GOD FORBID YOUR TENNANT SUES YOU FOR WHATEVER, IT WILL ONLY BE WHATS IN THE CORP., NOT YOUR PERSONAL ITEMS....

    I DID THAT WITH SOME OF OUR COMMERICAL R.E. LLC IS THE WAY TO GO........


    GOOD LUCK,
    BRUCE
     
  8. Edward 96GTS

    Edward 96GTS F1 Rookie

    Nov 1, 2003
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    Peter, Does that make the income to calculate to:
    $50k-22.8=$27.2k? OR $62k-$27.2=$39.2?
    Craig, Condo will be personally owned.
    Bruce, good idea, I will make it a LLC
     
  9. PeterS

    PeterS Three Time F1 World Champ
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    Edward..Don't confuse your income with adjusted gross income. Your income is $62K! You have a great tax deduction. Take your return and buy another rental! As far as an LCC, I'd forget it. Your primary residence is safe from liens in case of a lawsuit. Just make sure you have enough insurance and everything in the rental is working good and safe.
     
  10. Texas Forever

    Texas Forever Three Time F1 World Champ
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    Edward, I just saw this post. From what you say, you purchased a rental property, yes/no/maybe? If so, you will need to report the rental income and expenses on Schedule E, which is a separate form that you attach to your 1040. In addition to deducting interest and taxes, you must also claim depreciation.

    If you have a loss, the only problem with deducting this loss is what are called the Passive Activity Loss rules or PAL. This is a very complicated area, but as a general rule you can claim up to $25K in PAL losses resulting from residential real estate so long as your other income is not more than $100K or there abouts AND you activity manage the rental, which means that you are something more than a passive investor.

    Sad to say, this is just more one example where Congress has screwed up the tax laws to the point where there is no hope that a reasonably intelligent person can figure this stuff out. So, you are either going to have to hire someone to do your taxes or hit the books.

    Good Luck, DrTax
     
  11. BWS550

    BWS550 Wants to be a mod

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    PETER

    I DISAGREE......FOR 50.00 HERE IN NJ, A LLC CAN BE SET UP TO PROTECT YOU FULLY AGAINST ANY LAWSUITS ON A RENTAL....

    DOESNT HAVE TO JACK UP HIS INSURANCE. BEST 50.00 SPENT...........
     
  12. Edward 96GTS

    Edward 96GTS F1 Rookie

    Nov 1, 2003
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    DrTax,
    I'm in escrow w/ condo. What is the tax allowance if I'm an Active manager?
    Ed
     
  13. Edward 96GTS

    Edward 96GTS F1 Rookie

    Nov 1, 2003
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    The numbers in the initial senario were for simplicity. Do the expense/tax rules change if my income(combined w/ wifes income) is greater than $150k?
    Please explain how a LLC may help in deducting rental losses.
    Thanks
     
  14. Texas Forever

    Texas Forever Three Time F1 World Champ
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    Ed, sorry to punt on you, but you really need to get some one-on-one advice. There is simply no way that anyone can do this on an Internet Chat board. Hopefully, you brought the condo because you thought it was a good investment. If so, any tax breaks you get will be icing on the cake.

    Good luck, DrTax
     
  15. Edward 96GTS

    Edward 96GTS F1 Rookie

    Nov 1, 2003
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    Dr Tax,
    Good points, I'm just waiting for a return call from my CPA. Until then, can I deduct the mortgage interest as an expense if my combined income is greater than $150k? Since rent will be less than mortgage payment, it will show up as a loss.
     
  16. Edward 96GTS

    Edward 96GTS F1 Rookie

    Nov 1, 2003
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    Bump-CPA has not called back yet.
     
  17. Texas Forever

    Texas Forever Three Time F1 World Champ
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    Alas so typical....
     
  18. PeterS

    PeterS Three Time F1 World Champ
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    Edward..One item to be aware of is that banks (when you want a loan) look at your income. Lets say you have a $100K a year job and have a $20K adjusted loss. To a bank, your income is $80K. This could make your credit score go lower when it comes to bills to income ratios.
     

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