deduction rental, property tax and mortgage interest

8 Replies

I wanted to buy an investment property for rental.

my payments on my primary residence will hit the limit for mortgage interest and property tax deduction under the proposed GOP tax plan.

But as I recall doing my taxes on rental property before, the mortgage interest and property tax falls under business expense and is not affected by new GOP tax plan?

I plan to split the down/month payment, and income / expenses with another family "couple" 50/50, is there issues there?

if we do not setup an LLC , could we both be able to claim this as a business and its expenses (50% of the numbers) etc. Last time I did not have LLC and just reported the rental income and deduction but I was the only person owning the investment property.

@Jeremy H.

my payments on my primary residence will hit the limit for mortgage interest and property tax deduction under the proposed GOP tax plan.

Ans:  I know you live in CA, but standard deduction is 24k for M now. Even if you itemize, CA has a new provision where you can bypass that 10k limit on the property tax. 

But as I recall doing my taxes on rental property before, the mortgage interest and property tax falls under business expense and is not affected by new GOP tax plan?

     Ans: Yes, there is no Limit on business expense. 

I plan to split the down/month payment, and income / expenses with another family "couple" 50/50, is there issues there?

Ans: no there is not an issue. You just worry about your share of rental activity.  

if we do not setup an LLC , could we both be able to claim this as a business and its expenses (50% of the numbers) etc. 

Ans: Yes, you can just report your portion of income and expenses in your own Schedule E. 

Make sure you understand your risk and decide if you want to get an LLC. I know CA has 800 fees for each LLC.

Originally posted by @Ashish Acharya :

@Jeremy H.

Ans:  I know you live in CA, but standard deduction is 24k for M now. Even if you itemize, CA has a new provision where you can bypass that 10k limit on the property tax. 

Thank you for your reply Ashish.   My mortgage interest and property tax combined is about 45k a year.  So I must itemize.

Can you please tell me about this over $10k provision in CA?  I have never heard of it and cannot find anything about this.   

It would really help, I also thought the $10k is also the state tax deduction and property tax together!  It's a big change in numbers there for me.

Originally posted by @Jeremy H. :
Originally posted by @Ashish Acharya:

@Jeremy H.

Ans:  I know you live in CA, but standard deduction is 24k for M now. Even if you itemize, CA has a new provision where you can bypass that 10k limit on the property tax. 

Thank you for your reply Ashish.   My mortgage interest and property tax combined is about 45k a year.  So I must itemize.

Can you please tell me about this over $10k provision in CA?  I have never heard of it and cannot find anything about this.   

It would really help, I also thought the $10k is also the state tax deduction and property tax together!  It's a big change in numbers there for me.

It has to be passed. but California Senate President Pro Tempore Kevin de León, a Democrat, and two other senators, have introduced a bill in that state's legislature that would allow individual taxpayers to make a charitable donation to a new state fund and receive a credit for the full amount paid to that fund on their California income tax return. 

The bill is an attempt to work around the $10,000 limit on state and local tax (SALT) deductions that applies to 2018 and later years under the federal Tax Cut and Jobs Act (the Act).

The effect of the legislation, for federal income tax purposes, would be to convert a SALT payment into a charitable contribution and thus avoid the $10,000 SALT deduction limitation. 

I'm considering buying an investment single family property and want to use seller financing.  Is the mortgage interest deductable?  Does the seller have to do anything specific on his end if so?

Originally posted by @Benjamin Jones :

I'm considering buying an investment single family property and want to use seller financing.  Is the mortgage interest deductable?  Does the seller have to do anything specific on his end if so?

Yes, the interest is deductible for business properties. The lender should issue you a form 1098 if you pay more than $600 interest during the year.

@Jeremy H.

The ploy by the CA legislators that @Ashish Acharya described will probably collapse if the IRS challenges it - either with a blanket decision or via individual audits.

I've represented clients against the IRS for 20 years, and I would take a case like this, but I'd estimate my chances of prevailing as less than 50%.

Frankly, I expect this specific tactic to be explicitly prohibited before it's time to prepare 2018 tax returns.

Originally posted by @Jeremy H. :

I wanted to buy an investment property for rental.

my payments on my primary residence will hit the limit for mortgage interest and property tax deduction under the proposed GOP tax plan.

But as I recall doing my taxes on rental property before, the mortgage interest and property tax falls under business expense and is not affected by new GOP tax plan?

I plan to split the down/month payment, and income / expenses with another family "couple" 50/50, is there issues there?

if we do not setup an LLC , could we both be able to claim this as a business and its expenses (50% of the numbers) etc. Last time I did not have LLC and just reported the rental income and deduction but I was the only person owning the investment property.

Yes you can buy with a group and share the expenses, costs and deductions. Don't get a LLC unless you need one. And you dont need one for one rental property. It's just wasted money imo. You should get a umbrella insurance policy instead. Talk to your agent and get some quotes. I carry a 2 million umbrella.

with regards to the CA donation loop hole, it looks like they are now changing it from 1:1 tax credit to 85% tax credit of your donation.

https://leginfo.legislature.ca.gov/faces/billTextC...

Does that mean if I want to donate I have to do so by Dec 31?    I don't think I have that much spare cash around.    Is this still attractive now at 85% if I am in 25% tax bracket?   Will I lose it all in an audit?

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