Out of State Passive Investment Taxes

Out of State Passive Investment Taxes

Lincoln, CA · Member since 2017 · 10 posts · 0 votes

I am in CA and thinking of buying 2/3 apartments in MI state managed by apartment complex management.

What can I deduct from my expenses?

1. Property Taxes (Y/N)

2. Property Insurance (Y/N)

3. Management Costs (Y/N)

4. Maintenance Costs (Y/N)

5. Depreciation (Y/N)

6. Vacancy losses (Y/N)

7. Adding new items, say Refrigerator, etc. (Y/N)

8. Improvements, say new tiles in bathroom etc. (Y/N)

It is definitely going to be a PASSIVE investment, unless there is a way to make it passive. I have full time job too.

Thanks a bunch!

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  • Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
    9y

    1, 2, 3, 4 and 5 are deductible against rental income

    #6.  Vacancy loss is not a deduction.  It is an allowance most investors use in their cash flow analysis when considering a prospective purchase.  There is no deduction for rent you did not receive.  Instead, you just pay tax on the actual net rental income.

    #7.  The cost of improvements is a normally capital expense that increases your tax basis.  The increase in tax basis does increase your depreciation deduction, but the cost of improvements is not typically deducted.  There are exceptions for low cost replacement items, but the general rule is capitalize then depreciate.

  • Lincoln, CA · Member since 2017 · 10 posts · 0 votes
    9y

    Thanks Dave! Appreciate that.

    How does one calculate the basis of the property for depreciation? Especially, how would it be calculated for a condominium?

  • Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
    9y

    @Ken Singh

    The value of the dwelling structure can be depreciated, but not the land. Your depreciation basis is determined by your purchase price. If your county tax assessor has allocated 75% of the property's value to the dwelling structure (improvements) and 25% to the land, then your depreciation basis will be 75% of your purchase price over 27.5 years.

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