Deductible losses on rental property
I'm doing my taxes and when I plug in the numbers for my investment property it shows a passive income loss due to the taxes and interests on the mortgage. Would this hurt me if I want to get second investment property since the bank will not consider my property profitable even though I'm making $225 cashflow a month. I'm renting it for $2000 a month and mortgage is $1775. I talked to a lender and they said my property is considered a liability since it shows a passive income loss on my taxes. Could someone please help understand this. Thank you in advance.
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- Real Estate Broker
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@Humberto Perez I agree with the others. Your property is losing money and not a good investment. I assume $1775 covers your principal, interest, taxes, and insurance. That leaves $225 to cover vacancies, maintenance, capex, etc. It's not nearly enough. One month of vacancy will eat up almost eight months of income. One bad tenant can easily cost you $6,000 in losses which would eat up almost 2.5 years of income! I highly recommend you learn how to analyze a property for good returns, then consider selling this house and looking for a better investment.
How to analyze investment property
As for your losses, it's HEALTHY to show a loss on your tax return. It's part of the benefit of investing in real estate. I highly recommend you read a couple books like How To Invest In Real Estate by Brandon and Josh or The ABCs of Real Estate Investing by Ken McElroy.
- Nathan Gesner
