Tax Implications for Owning/Renovating/Renting a Multi-Family?

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    Hi,
    Can anyone run down the ways that owning a multi-family house plays out re taxes?

    -how do you calculate which parts of construction are for the rentals and which are for your own unit, for somthing like a boiler, the exterior, roof, etc?

    -do you have to pay taxes on any profit you make on your rental?

    -is it a big difference between one unit or two?

    Thanks!

    2 Replies

    1. This is trivial common sense for the most part:

      What you spend is either expenses (light bulbs, routine repairs, utilities, mortgage interest) and deductible from the income immediately or capital (depreciation (typically 50% of what you paid as land does not depreciate), roof, boiler, major reno) and deductible according to a schedule (probably 15yrs imsr). If you’re occupying a part of the premises, that percentage of everything except interest is *not* deductible (interest is on your personal side). As dibs said, the deductions typically cause a loss for the first 5-10 years so you are in the middle-class-subsidy-thanks to taxpayers range.

      When you sell, you typically do a “1031 exchange” for a new building, which magically extends all those taxable gains to the new building so you don’t owe no stinking taxes. Isn’t it wonderful that we get all these advantages that renters cannot avail themselves of?

    2. You need to speak to an accountant.

      Basically the entire, all in, cost of the house plus any capital imnprovements (roof, boiler, exterior, etc…not simple repairs) are pro rated over the number of units, typically by floor or by square footage. If it’s a two family and you have two floors and the rental is one floor then rule of thumb is 1/3 of those costs are amortized against rental income, as are costs of utilities, taxes and mortgage.

      Typically this generates an accounting LOSS which, DEPENDING UPON YOUR INCOME, you may or may not be able to claim.

      Accountant needs to explain the treatment upon sale of the house.