Property Taxes While House Hacking: What You Need to Know

There are a lot of tax benefits to house hacking. In fact, many people view it as a tax strategy. But there are some things you need to know in order to make the most of your property taxes while house hacking. In this blog post, we will discuss Adjusted Gross Income, financing, rental versus personal use, depreciation, and calculating expenses. We will also provide examples so that you can see how it all works in practice!

Adjusted Gross Income: The first thing you need to know is your Adjusted Gross Income (AGI). This is the number that is used to determine your tax bracket. It includes all of your taxable income, such as wages, interest, dividends, and capital gains. It also takes into account certain deductions, such as student loan interest or contributions to a retirement account. Your AGI can have a big impact on your taxes, so it's important to understand how it works.

Financing: The next thing to consider is financing. When you buy a property, you will likely take out a mortgage. The interest on your mortgage is tax-deductible! This can be a great way to reduce your taxable income. You will also want to consider any other financing costs, such as points or origination fees. These can also be deductible.

Rental versus Personal Use: Another thing to think about is how you will use the property. If you are planning to rent it out, then all of the expenses associated with the property (such as mortgage interest, insurance, repairs, etc.) are tax-deductible. However, if you are going to live in the property yourself, then only a portion of those expenses are deductible. The IRS has a "safe harbor" rule that allows you to deduct up to $25,000 in rental expenses if your AGI is less than $100,000. This can be a great way to reduce your taxes!

Depreciation: The final thing to consider is depreciation. This is a tax benefit that allows you to write off the cost of the property over time. The IRS has specific rules for how this works, but essentially you can deduct a portion of the value of the property each year. This can be a great way to reduce your taxes!

Calculating Expenses: When you are house hacking, it's important to keep track of all of your expenses. This includes things like mortgage interest, insurance, repairs, and more. You will need this information when it comes time to file your taxes. The best way to do this is to set up a system where you track all of your expenses in one place. This could be a spreadsheet, a budgeting app, or even just a notebook. Whatever works for you! Just make sure that you are keeping track of everything so that you can deduct it on your taxes.

As you can see, there are a lot of things to consider when it comes to property taxes while house hacking. But if you understand the basics, it can be a great way to reduce your taxable income. So don't be afraid to get out there and start house hacking! It could save you a lot of money in the long run. Thanks for reading! We hope this was helpful! Please feel free to contact us if you have any questions. We would be happy to help! Thank you!