Accidental landlord Tax question

5 Replies

New job is going to take me away, having me moving from my primary residence and hoping to rent the house out. I am wondering how this is going to affect my tax liability on what was my primary residence. Don't want a heck of  a tax bill that is going to eat up any cash flow I might realize on the rental property. Is there a website or other information I can find that might help me in the figuring of what I should do to make this profitable?

Its a heck of a time and looking for any advice.


best source is reading   I know you don't want to hear that but it is true.  Look at the business expenses and how they treat passive income. Pay attention to what expenses you can deduct from your income from the property. Look at what is a capital improvement and how you deduct depreciation for those improvements.    Also because you have a day job it is going to be considered passive income so make sure you understand what applies to you and what doesn't.    If you like your current area don't forget that you may want to deduct expenses for "visiting " your rental property to check on it once you move away.  You might see a couple of friends too. 

Good luck, and of course read up here on how to evaluate your property and income as a rental to see if renting it out makes sense.

congrats on your new position. The following is a simplified version and just food for thought. For a more "legal" answer check with a CPA or the it's website.

Typically the tax implications is only on earning after expenses and depreciation. Expenses are repairs (not improvements), tax, insurance, interest, etc. you cannot just subtract your mortgage as principle is an income.

So quick and dirty

Rent- repairs (not improvements) - improvement on depreciation schedule- insurance- tax- interest-depreciation (house only/27.5) it is common if your rent does not have a much greater margin. I personal love book loss because it is only a account loss but helps my taxes.

Thanks again great advice and very quick I love this site!!

By tax liability, I am guessing that you want to know how your total annual tax bill or tax refund might change when you convert your home into a rental.  Assuming that you do not buy a replacement home, and just rent, the rent you pay is not deductible.  You lose the home mortgage interest deduction on Schedule A and may have to just take the standard deduction.  So, your tax bill may get larger or your refund may get smaller when you have to take the standard deduction or a lower itemized deduction.

If you are getting a homestead exemption on property taxes or a reduced rate for an owner occupied property, your property taxes will go up when you convert your home to a rental. 

Depending on your marginal tax bracket, converting your home to a rental property may not lower your total tax bill to the IRS, and may increase it.  If you were depending on large home mortgage interest deductions when you itemized deductions, you won't have the home mortgage interest deduction any more.  You still get to deduct the mortgage interest, but it is deducted on Schedule E against rental income.  If your gross income is over $150K per year, you won't get to deduct any rental losses.   If your adjusted gross income is less than $100K, the amount of rental loss you can deduct against your other ordinary income is capped at $25K per year.  

If your property is worth less today than you paid for it (a lot of people have this problem), you have to adjust your tax basis down to the fair market value of the property when you convert to a rental.  If you later sell the property, the lower tax basis is used to calculate your gain or loss.  I realize that this does not have an immediate impact on your tax bill, but when you sell, the impact of a sale may be more than you had expected.

If you are planning to sell your property in the near future, be sure to do it within three years of moving out.  If you sell more than three years after the property ceased to be your primary residence, you will lose the capital gains tax exclusion on the sale of a former primary residence.  The sale profit will be a taxable capital gain and you will also be taxed on unrecaptured depreciation. 

Is this answer what you were looking for when you asked the question?

BAM, exactly. Thanks Dave!!

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