To show rental profits on taxes or not?

Question

Do most landlords show losses on their rentals?

Reason asking I am looking for another loan, and while the rental losses I showed in 2017 are minor, they are hurting my lending ability.

Granted, it was nice to receive a 'return' but wondering if I should file differently for 2018. Has anyone dealt with this?

@Brad Farber @Jay Dertzbaugh

Jim K. · Answer

I stand corrected and ashamed of my ignorance. This is why I fix the houses and my wife handles the money. I should really confine my comments in this forum to landlord-tenant relations and home maintenance issues.

Basit Siddiqi · Answer

@Jonathan FarberYou are required to report your rental activities on your tax return.The return will report rental income less expenses(mortgage interest, insurance, real estate taxes, repairs, depreciation, etc).

There are certain elections that you can make that can allow you to speed up or report expenses over a period of time. With that said - you shouldn't underreport an expense for your return to look better from a lender's perspective.

While many rental activities reported on tax returns show a tax loss - the lenders should be looking at it carefully to see what expenses can be removed from a lender's perspective so you can have a lower DTI Ratio.

Examples - Many lenders add back depreciation
Also - if you had a year with extensive repairs(roof, water heater, etc) - you can argue with the lender that normally repairs should be $1000 a year instead of the $5000 that we had last year.
The lender may be able to addback $4,000 in this case to your income for DTI purposes.

Mike Dymski · Answer

I have "re-positioning" costs as a separate line on my P&L and have my CPA put them on line 19 ("Other") of Schedule E. This allows lenders to exclude those non-operating costs, should they choose to do so. Commercial lenders will exclude them...not sure if residential lenders will.

@Caleb Heimsoth DTI (for everyone) is negatively impacted if rental properties are cash flow negative.

Natalie Kolodij · Answer

This is filing a fraudulent tax return.

Also depreciation is allowed or allowable- meaning he's going to pay tax on depreciation recapture whether he actually gets the benefit of the deduction or not.

And any competent mortgage lender will add back depreciation for qualifying for loans.

Jim K. · Answer

So don't deduct depreciation and other rental expenses on this year's tax return. Good luck.

Basit Siddiqi · Answer

@Jonathan FarberI don't think the lender will want to go through receipts.

Just tell him what items were fixed that were reported as repairs on the return.

A good lender will know that if you spend $2,500 on a water heater or something that you won't have a similar expense for many years. As such he will back it out.

Jonathan Farber · Answer

Some of the costs were larger unexpected Capex expenses. If the banks are shown the receipts for these do you think that will change the conversation?

Yonah Weiss · Answer

@Jonathan Farber, @Wendy Home most landlords show a paper loss because of depreciation. And, no, this is no need to be worried in an audit. This is keeping strictly to the law.

Most lenders understand the difference between, income vs. tax losses. showing rental 'losses' should not be a reason to disqualify you for a loan. Find a lender that understands the difference. Like a said, most do.

To show rental profits on taxes or not?

To show rental profits on taxes or not?

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