Property rental question?

Question

We are considering renting a property in California and have some questions.

Our current mortgage, tax and HOA dues come out to $2100 per month. We can rent the property for $1600 so we would have to add $500 every month.

Do we get to claim that as a loss at the end of the year since any income on a rental is considered income?

How does it work?

Answer 1

Interest paid on the mortgage of a rental is tax deductible along with the insurance and taxes.  Only the portion paid towards the principle is not tax deductible, however, you do get a depreciation schedule on the house.

Repairs, maintenance, advertising, management fees, legal fees (lease agreements) and travel involving the property is also tax deductible. And, yes, the HOA fees.

Being a landlord can be very profitable.  Rents go along with inflation.  Consider putting in the extra $500 as being an investment.   You are buying the property.  After income and expenses, the house is costing you maybe $2000 per year.  How else can you buy a house so cheap?

Answer 2

As long as you are renting the property and fair market value, you can claim your losses (up to $25,000) but it is not simple.  You can't just take your $500 shortfall and multiply by 12.  You must fill out Schedule E for the property.  Income and expenses related to the property would go on this form.  It is rather complex to understand so I would not try it on your own.  Take your return to a professional.

Answer 3

Sort of!  You complete a Schedule E which records all of the income and any expenses.  The "mortgage interest", property taxes, HOA, utilities, insurance,repairs, depreciation and just about any other expense that you pay to maintain or rent the property is deducted.  The gain or loss from the Schedule E is carried to line 17 of your 1040 return.  Most people show a loss from rentals while having a positive cash flow, it would appear that you will have a $500 negative but should recapture that on your tax return..