Around end of August I bought a townhouse type property with an FHA loan (so I live in it too) and started renting out the rooms. (So I live in it too) While filing my tax returns, however, I ran into a few issues. I understand i need to report the income and figure out the expenses by using the square feet of the rooms. Both rooms rent for a total of $1100 and my mortgage is around $800. I just finished filling out my taxes and it said I owe about $700 for federal and state taxes. Is it supposed to be that high? This is after mortgage interest and depreciation and expenses were accounted for. Did I do something wrong.? Thanks in advance.
Don't know the whole picture...
However, you have to remember that the net income you earned from renting the room doesn't have income tax withheld during the year. So, when you go to file taxes, if you don't have enough deductions, you'll have to pay fed/state/etc. on that income.
@Ephrem Bekere It's impossible to answer this question without knowing 1) your other income and deductions and 2) whether you reported your rental income (as well as other items) correctly, neither of which can be ascertained from a forum post. I recommend that you work with a qualified tax professional.
It's not your fault, but you have no clue about the tax system, based on your question. And there is no way to fix that in a short online reply, sorry.
I can, however, suggest a way to get some perspective on your situation.
1. Remove everything related to your property from the tax return. Write down how much taxes you owe (or receive as a refund).
2. Add back the property (even though you may not do it correctly, I'm afraid).
3. What's the difference between the two numbers? This will tell you how much additional tax your property created.
It is possible that the number you will see is $700 or even more. We're missing tons of details, so no way to evaluate. If you do not like the number, then you might have to pay a professional to check whether your number is correct.
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing