Open House Wrap-Up
Did anyone check out any of the Open House Picks this weekend? How about any other interesting places? We’d love to hear from those who can comment. Open House Picks [Brownstoner]
Did anyone check out any of the Open House Picks this weekend? How about any other interesting places? We’d love to hear from those who can comment.
Open House Picks [Brownstoner]
check out comment Apr8 2:26pm On the OpenHouse Picks entry itself for lowdown on Lincoln.
so um, anyways. sorry to be a party-pooper, but i’d like to hear about the issue at hand ….
did anyone get to see the house on lincoln place?
Uh, I’ve been for years taking major losses ‘against my personal income’.
2k ain’t nothing. Don’t know here you’re getting that figure.
This is 1st year in almost 20 where rental income will show profit.
Rental is great way to deduct much of expense of house. Has worked great for me.
Not only can you depreciate the capital value of the building, but your interest payments towards the portion of the building that’s rented are deductible against the income from the apartment.
However, this reduces the tax-deductability of the mortgage interest. The portion of the interest that goes toward the rental portion is not deductible under the home mortgage deduction, but is deductible as a business expense.
Unfortunately, the law limits the deductability of business losses against persional income, so you may end up with a smaller net deduction than if the whole house was occupied.
Here’s a contrived example: you buy a 3-story house for $1.25M with a $1M mortgage. You have a 6% loan and a single floor-through unit, which rents for $1K/month. You’re paying $60K/year in interest at first and bringing in $12K/year in rent. Because the rental is 1/3 of the house, $20K of the interest is a business expense, with $12K of income. For this analysis, let’s ignore other expenses towards the rental. Since your business is losing $8K/year, you don’t have to pay tax on the rent (no net income). Unfortunately, you can only take a limited amount of the loss as a deduction against your personal income (I think it’s $2K). This means you end the year with a retained loss of $6K. If you stay in the house long enough, you will eventually pay down enough of the loan that the interest portion will drop to being less than the rent; at this point, you’ll have a net income, but you’re allowed to apply the retained loss against it until you’ve consumed the entire loss. Only after that time does the net income become taxable.
When I ran the numbers for rental units, I found that I wouldn’t have any net taxable income from the rent for about 20 years. Of course, this was subject to some wild-ass assumptions about how rents would change, and tax laws can change at any time.
I am not an accountant or tax lawyer, and there are many details that I’m ignorant of. I think anyone in this situation should consult a professional.
OK, so you shouldn’t buy a house with a rental because they’re not going to go up in value. And also because they will go up in value (and you’ll eat into your capital-gains cushion).
Huh?
Anyway, as far as the basis goes — making so much money on your house that you actually, God forbid, have to pay taxes on some of the gains is a problem no one should be whinging about.
to my knowledge, when you sell a house that you depreciated, you always have to pay tax on the depreciated portion. the 500k exemption does not apply to that portion
Also remember that if you start depreciating the rental portion, you start eating at the basis of the house — which makes it that much easier to blow past the $500,000 capital gains exemption
Given that area rents have been flat the past few years, that is precisely why I’d expect rents to go up before home prices do. It’s when rents have shot up a lot recently that you shd worry about them diving or staying flat.
Also, not that I’m a cheerleader for 15th in particular, but I don’t think it would be so simple or cheap to rent a place equivalent to the owner’s duplex here. Do you have examples?
Yes, but not 100%. People always seem to just knock the entire rental income off their projected mortgage payments when buying something more expensive than they can actually afford. I don’t know, if I had to rely on a rental to swing a house, I don’t think I’d want it. I wouldn’t want to pay all that money and wind up living in what’s basically a coop unit. I guess I mean this for places that have more than a basement rental (a duplex or two apt.’s).