Depreciation Owner Occupied Vs. Rental Am I On the Right Path

[Mark Anderson]

I am currently looking into buying a rental property. However I will pursue the deal that makes the most sense and wanted to confirm I am on the right track in regards to my understanding of tax write offs. I plan on working with an accountant once I have purchased a property but wanted to get an overall understanding of the tax writes off before purchasing a property. Owner occupied residence qIadplex and below my understanding -you have to occupy the unIt withIn 60 fays of purchasing It for It to be owner occupied -you can write off the interest and property tax to lower your overall income to a lower tax bracket. -any income from the rental over the interest and property tax would be considered ordinary income -you are able to to write off the depreciation of the real estate property over 27.5 years for the units you are renting and maybe the one you occupy as well. As long as your income is less than 150k -you can also itemize the depreciation of the flooring, appliances etc. for those unIts yoI do not occupy over a shorter period of time than 27.5 years -you can write off the cost of improvements to the units in which you do not occupy NOT Occupied Rental Property --you can write off the interest and property tax to lower your overall income to a lower tax bracket. -any income from the rental over the interest and property tax would be considered ordinary income -you are able to to write off the depreciation of the real estate property over 27.5 years for the units you are renting and maybe the one you occupy as well. As long as your income is less than 150k -for example if you make 50k at work and 50 k from rental income 100k gross earnings from the year you could subtract 1/27.5 years of depreciation let’s call it 50k and 30k of interest and tax so your tax able income would be 100k-80k=20k taxable income -how would being a real estate professional help me making under 150k Would appreciate any help or resources you could refer me to

[Natalie Kolodij]

I think you're mixing up several comcepts. 

Part 1:

You owner occupy 1 unit of 4. Assuming all 4 units are the same size....then you get to depreciate 75% of the building value over 27.5 years. 

Any improvements done to those rental units (depending on safe harbor and tangible property regs- but lets assume big items that require capitalization) are depreciated 100% at 27.5 years. 

Any improvements that impact all 4 units (IE a roof ) you would depreciate 75% of that over 27.5 years. 

Any improvements to your personal unit = NO depreciation. They just count toward your basis, and can reduce any gain when you sell.

Part 2: 

Mortgage Interest and Real Estate Taxes 

75% will be deducted against rental income on Sch E 

25% will be deducted as itemized deductions on your Scheduel A (If your itemized deductions are above the $24k required for 2018 to be able to itemize) If your itemized deductions are below $24k- you get the $24k standard deduction instead and nothing happens with that 25% of the interest/re taxes. 

Part 3: 

The $150k rule you're referencing is the small taxpayer allowance to deduct passive loses. 

This is unrelated to taking depreciation, or deductions ect. 

All this means is that IF your AGI is under $150k AND your rental generates a loss on Sch E  AFTER accounting for depreciation, expenses, ect....

Then

That loss will be allowed to offset your earned income. 

That begins to phase out at $100k. And once your AGI is over $150k then that loss can't be used. And just carries forward to a year in which you have passive income to use it against, or when your income is back below that threshold. 

Hope this helps!