Rental Income ...Deductions..Taxes on it...How would this work ?

Question

This year will be my first year in claiming Rental income / taking Deductions via ..... Interest, Insurance, Taxes, Depreciation on one of the two properties that I have as rentals ( the other rental , I will have to wait till 2018 tax season to claim , as I plan to have it ready to rent out by March of this year ...2017  )

The Rent I collect on the Unit is $500 a month  ( so $6,000 a year )

My note is $480 a month  ( PITI )

Since I have only owned this property for just over a year now , come 2018 , will I be able to " claim " this $6,000 a year from the Rent , as actual Income ?

And if so , what % will I pay Taxes wise on this  $6,000 ?

Is there a way to avoid having to pay so much money on Rental income ?

This second rental income come March of this year ( 2017 ) will be from my Primary residence , which is the Main house, of which my current $500 a month Rental income property is connected to , via the Roofline / a Breeze-Way that seperates the two houses

If I rent out the main house  ( my Primary ) come March ......... Will I be able to claim the rental Income from March through December of this year as " Income "  ?

Thanks so much , for any and all help

I very much appreciate it

Jeff B. · Answer

Rentals are accounted on the IRS Sch-E form; both income and expenses.

Classic accounting is income less expenses = profits (losses).  The last box on Sch-e carries over to your 1040 line 17 which either increases or decreases the taxable income for the year.

Michael Dunn · Answer

Off topic a bit, but am curious ........ Since I will have been collecting this $500 a month Rent money, for a full year ( From Jan. 2016 - Jan. 2017 ) ........... Will this $500 offset my PITI note of $480 ? Meaning , will it show up to a Lender, that I NO LONGER have a Mortgage via when the Lender is taking my DTI ratio into consideration ? Thanks so much

Michael Dunn · Answer

Kevin Siedlecki ,

So on the $500 current monthly rent I'm receiving , I'll pay relatively No taxes on , correct ?

My question then is .......... I was hoping to show that $6,000 as Income , ONLY to increase my Overall yearly Income ....... to help in me in aquiring Loans and financing , given that that $6,000 will raise my Annual Income

But if I understand correctly ....... If I claim all $6,000 and don't take any Deductions on it , I'll have to pay Takes on that full  $6,000  at a  15% Tax rate ?

How then would the say $10,000 I make on Renting my Primary Residence out this year work then ...... as Far as Paying taxes on it , Taking Write Offs, Claiming X amount to show as Income, etc. ?

Thanks so much again for Everyone's input and help

evin Siedlecki

Steven Hamilton II · Answer

My advice:

You need to get an education on how the income and expenses are treated.

You definitely need someone qualified, does not have to be a CPA, could be an Enrolled Agent or an attorney. Just make sure they specialize in tax and have significant experience dealing with real estate investors.

Here is a great list of questions to ask a potential accountant: http://www.biggerpockets.com/forums/51/topics/7044...

Also check out the www.NAEA.org page in your search. It should help you find someone local. If someone comes to me, I'll send them your way.

If you need help in your search or want to verify something don't hesitate to ask.

For example: I have clients worldwide and things are just as easy as I e-mail them, talking on the phone. I even use Skype and TeamViewer to communicate with clients so I'd highly recommend looking for one of the best with great references that interviews well with you.

So look for someone you can connect with that works out for your situation.

Feel free to ask here if you have questions

Kevin Siedlecki · Answer

@Michael Dunn - lucky for you, you have some misunderstandings of income, expenses, and taxes that are going to make your tax situation a lot better than you fear. You'll definitely be able to claim a tax loss on that property, and the one you won't have rented until March.

Think of your investment portfolio as a business. You are only taxed on your profits. Your profits right now are $20/month plus the principal you pay on your loan, so instead of $6000 income, your actual income is around $500, maybe, the $20/mo plus the amount you've paid in principal.

This particular case is going to be more complicated than that because the structure that is attached to your residence, so get a CPA to look at it and tell you how that will work. You're only going to be able to write off a portion of the taxes and insurance.

The most important thing is to talk to a CPA to make sure you are categorizing your expenses properly. But the bottom line is you are going to pay way less in taxes than you think!

Rental Income ...Deductions..Taxes on it...How would this work ?

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