Loss Reflected on '16 Tax Yr - Told I can't finance a new rental
Good evening. I posted this same question in the Mortgage and Financing forum and received some great insight from the lending perspective. I'd like to get some feedback from those with an extensive knowledge of real estate and taxes and how they can effect my future ability to purchase an investment property, and even more importantly, a primary residence. I'm active military and plan on purchasing a primary home at each duty station then turning into a rental upon departure to the next.
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I was recently in the process of gaining a pre-qualification for purchasing an investment home (buy and hold rental).
Our starting target range ~$100K. I spoke with a lender who was referred to me by my real estate agent and he pretty much told me that I have zero chance of financing an investment property for the next few years.
The primary reason given is that my 2016 tax return shows a loss of ~$10.9K on a rental home we own in Maryland.
I'm fairly certain that I miscalculated the depreciation on the house. We moved and began renting it out in August. The depreciation from August should only be about $4.5K but when inputting the date of business use, I put the purchase date (July 2014) versus the date we began leasing it. That resulted in the depreciation being counted for the entire year ($11.1K) versus just a quarter of the year.
There are a couple questions I have.
1. If/when I amend my return (pretty certain I should), should I also look at adjusting the other expenses originally claimed (Specifics below):
Advertising: $150
Auto and Travel: $108,
Cleaning and Maintenance: $2,363
Commissions: $2,600
Insurance: $ 306
Mortgage Interest: $6,572
Repairs: $360
Taxes: $2,051
Depreciation: $11,131
Other (replaced washer/dryer): $774
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Total Expenses: $26,415
Bottom line from my Schedule
Rents Received : $15,430
Total Expenses : $26,415
Deduction for loss : (-$10,985)
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If I amend and take out all things except for the taxes, insurance, commission and the correct depreciation, I would show a profit:
Taxes: $6,572
Insurance: $306
Depreciation: $4,444
Commission: $2,600
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Total Expenses: $13,922
Bottom line after proposed amendment
Total Rent: $15430
Total Expenses: $13,922
Profit: $1,508
I know this is a long post, so I appreciate and and all help. I tried to ask these questions to the mortgage broker, but he seemed less than interested in the matter. What are some of the second and third order effects of amending the return? Would I put myself in any worse of a position or would I possibly improve it?
Thanks in advance,
Eric Villafana