Tax Deduction General Questions

[Zak Klobucar]

Just wanted to get some general information on tax deductions...nothing in depth, want to make sure I'm not completely off with my analysis. When buying a property, there are a lot of items that can be deducted at tax time, like property taxes, HOAs, utilities (if you pay them), mortgage interest, and depreciation (based on 27.5 years). If my income puts me in the 28% tax bracket, and those deductible items listed above come out to $10,000 (easy number for math purposes), would I be able to collect an additional $2,800 from the IRS...and would it be smart to include this in your cash on cash ROI calculations for the year? Like I said...I know it's WAY more complicated than this, but I wanted a general idea if I was on the right track. Also, if there are any accountants that specialize in income properties in the 60067 area, I would definitely like to take you out for a lunch (and pay for your time) to get any additional information I could to better understand this. Thanks so much everyone!

[Chris Coleman]

Zak, first, I'm not an accountant, so yes please consult a good tax account to better understand your tax situation. But speaking from rental property experience, and talking A LOT with my tax accountant over the years to better understand this...

I think you may be confusing your Schedule A deductions with Schedule E deductions.

What you describe is basically correct for your Schedule A deductions, such as the mortgage interest and property taxes on your primary home or a second home.

But rental property Income/Expenses are recorded on Schedule E, and are subject to Passive Activity rules. This makes the calculations different than just the straight percentage of your marginal rate (like on Schedule A).

Your tax accountant can explain this in detail.