Effect of Large Schedule E Losses in 2019?

Question

2019 has been a difficult year with multiple vacancies, extensive make ready costs, and lots of deferred maintenance being addressed. It looks like I will show a large loss this year, and I still have about $30k total in property tax bills. I usually pay them before yearend rather than early next year when due. However, there is a good chance I will be in the market for a financed personal residence next year, and I’m concerned about how the large losses could be used against me.

Does it matter whether I pay property taxes this year or leave them for next? How are Schedule E losses viewed when it comes to mortgage eligibility?

As far as deductibility from W2 income is concerned, I’m over the $150k threshold so there is no immediate tax benefit; losses will be carried over.

Basit Siddiqi · Answer

@Marco G.First you need to determine what is expensed on the return and what is capitalized."extensive make ready costs" may potentially need to be added to basis. There is not enough information here for us to determine that.In regards to how this comes into play is that you need to above(or below) a certain DTI threshold amount.The lender wants to make sure that you can pay all your bills given the amount of income you have.With that said, you may want to work with a lender who works with real estate investors. Explain your situation.He will throw out depreciation and potentially throw out one time items like big time repairs that will not happen on a happen the following year.Also provide him new leases when the units are no longer vacant.You mention making over $150,000. You may want to calculate what your DTI ratio is(roughly). It is a good number to know if you plan to borrow money in the future.