In 2012 I bought a house in a small rural town in Northern Montana where I was working at the time. The house served as my primary residence up until last October when I moved out of state for another job. I listed the property for sale over a year ago because I thought cutting ties would be easier than being an absentee landlord. I’ve had very little interest in the house due to the poor economy in this particular area so I’m planning to pull the property off the market and turn it into a rental.
I spoke to a property manager last week who I’m willing to work with and he said he can get $750 a month in rent (renter pays utilities) and he currently has two interested parties lined up.
Current mortgage is $500 with $150 of that going towards principal, $162 going to interest and the rest to taxes. The property manager would get 10% or $75 monthly, bringing my monthly cash flow to about $175. The house has about 50K left on the mortgage (I originally bought it for 72K and put 15K into it over the years).
With maintenance expenses I’m expecting my cash flow to be minimal so my real question is how significant are the tax benefits of renting this home and would it be advantageous to put the property in some type of business structure? Also, does anyone know if I’d be able to write off my costs of maintaining the house during the months it wasn’t rented?
@Marc Ardito you would be able to depreciate the house every year, which is the main tax advantage. You can write off all of your expenses once you convert it to a rental, so yes you can write off utilities and maintenance once you have converted it. In your shoes, I would personally be very, very careful of the quality of tenant that your PM is putting in. Make sure they have been screened thoroughly and that they meet your guidelines. A bad tenant can turn this "base hit" into a strike out very quickly.
It may be difficult to tell you what the tax implications are as we don't know your complete tax profile. Just based on the look at the numbers; it looks like you will have an overall tax loss if you factor in depreciation and repairs.
You may or may not be eligible to offset the tax loss against your other income.
I would consult with an attorney in regards to business structure/asset protection. I am more of an insurance policy type of guy.