Taxes on rental property

[Aariff Kadar]

Many claim that we will save lot on taxes by buying a property but i am not sure how we will pay less tax while earning rent.

I am CA and i am planning to rent my current home and move to another city.

Cost of the house is 580K approximately and rent will be $2800 and everything goes for mortgage, taxes and insurance and i will have 0 cash flow or negative cash flow.

i understand the i can claim property tax ($7800) and depreciation (approximately $20000) on tax but what about the tax on $2800 for 12 months (did not consider vacancy and manitenance for calculation purpose). can you please educate me on how this income is not tax deducitible? or how the tax consultation will take it out from tax?

[Ashish Acharya]

Originally posted by @Aariff Kadar:

Many claim that we will save lot on taxes by buying a property but i am not sure how we will pay less tax while earning rent.

I am CA and i am planning to rent my current home and move to another city.

Cost of the house is 580K approximately and rent will be $2800 and everything goes for mortgage, taxes and insurance and i will have 0 cash flow or negative cash flow.

i understand the i can claim property tax ($7800) and depreciation (approximately $20000) on tax but what about the tax on $2800 for 12 months (did not consider vacancy and manitenance for calculation purpose). can you please educate me on how this income is not tax deducitible? or how the tax consultation will take it out from tax?

 Tax saving should not be the first thought when investing in the RE. 

Yes, when you are ready to acquire the property, there is a planning that can done regarding  what kind of property to acquire to mitigate taxes, but when you are converting already owned property, you are stuck with either more taxes or tax saving it has to offer, you dont have a choice. 

Also, if your AGI  is more than 150k, the tax loses generated is not going to shelter your W-2 income right away.

If you have other passive income, the losses could be used or when you dispose the property.  

A lot needs to be discussed, to see what is better for you and what is the tax impact. 

Based on the number, looks like your taxes will not increase, but if your AGI is higher than 150k, you will not benefit right away either. This is very general statement.