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  1. #1
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    Mortgage Interest Tax Deduction on Rental Property ?
    I am not sure if I'm posting in the right forum or not -- I hope so.

    I was just looking for someone who understands taxes. I realize this is not an affiliate topic per say. its just that in light of the affiliate tax bills passing, i'm preparing to move out of my state. i own a home where i live. my plan will be to rent it out, rather then put it on the market.

    my accountant says if i rent my home, i can't deduct mortgage interest. i still have a mortgage on where i live. obviously i'll still be paying it. i purchased this home about 5 years ago..and like everyone else, most of my payment is interest right now.

    the thing is, everywhere online i read seems to imply i can still use that mortgage interest as a deduction even if i turn this place is a rental property. i just have one question: can i?

    CPA or not..can someone tell me for sure if you own a rental property, if you are able to deduct the mortgage interest on your taxes from it?

    I'm going to seek out a more knowledge accountant as well. i figured i'll post here to see if i can get some quick answers. most accountants i try and reach these days are very busy

    BTW: if i move, i am going to rent myself. in these turbulent times, i don't think i'm setting roots anywhere.

    thanks,

  2. #2
    Full Member gcarson's Avatar
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    Quote Originally Posted by cowboysfan View Post
    CPA or not..can someone tell me for sure if you own a rental property, if you are able to deduct the mortgage interest on your taxes from it?
    That's real estate 101. Without that, not sure anyone would own an investment property.

    FYI. I'm not a CPA but am in commercial real estate and also own rental property. As long as your declaring the income, you can write off the interest as an expense. Along with taxes, insurance, utilities and any repairs.

    What gets tricky is when you sell a house that you used as a primary residence and rented it out as well. You have to had lived in the property for a certain amount of years in the past 5 years in order to not have to pay capital gains. Not really sure what the rules are.

    You need a new CPA who understands basic real estate tax rules.

    Edit: After reading your post a few times. I'm confused. Are you living in the house and renting out a room while still living in the house? Or moving out and renting it out? If you're still living in the house and getting a renter to help pay the bills, I'm not sure what the rules are. But.. if it was me.. I'd probably just get the rent in cash..
    Last edited by gcarson; April 2nd, 2011 at 01:59 PM.

  3. #3
    ABW Ambassador 2busy's Avatar
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    Usually on rental properties, repairs, rental expenses (like advertising), mortgage interest and property taxes are deductible in the year they are paid, prorated for the number of months it was actually rented. Improvements and costs like mortgage principal are amortized over the life of the property. Different properties fall into different "useful life" categories. It definitely requires a knowledgeable Accountant and good record keeping.

  4. #4
    ABW Ambassador JudiMoore's Avatar
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    When you file your taxes, you will be putting the rent you receive on Fed form 1040 schedule E. You can probably download one as a pdf to take a look.

    You'll enter the rent received, and then tally all the expenses involved in earning that rent. Repairs, utilities, mortgage, advertising, etc. There will even be depreciation that can be subtracted as a non-cash expense.

    The difference between the income and the expense total is all you carry back to the income section of your 1040 and add to your gross income for tax purposes. Chances are you'll be able to show a loss or very little gain for the first couple of years.

    I'm not a tax professional. I don't even play one on TV. Consult your financial and tax experts for the details of your situation.

  5. #5
    Super Dawg Member Phil Kaufman aka AffiliateHound's Avatar
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    You accountant is neither right nor wrong.

    1. As to the interest not being a deduction, he most likely was referring to it no longer being an item than can be included in Schedule A as a personal itemized deduction, which it ceases to be when the property is converted to a business use;

    2. Judi explained it well as to the interest now being a Schedule E deduction to be deducted from rental and other income generated by the property.
    ___
    ditto re all that not an accountant stuff
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  6. #6
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    Thank you everyone for the feedback! i see why now i'm an affiliate, not an accountant lol

    gcarson: i'm moving out, renting it out. i'm moving into an apartment (my backup plan if affiliate tax laws pass where i live).

    i see in the end, i'm going to be in the hunt for a new accountant....

  7. #7
    Beachy Bill's Avatar
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    Sounds like you need a new accountant to me. Seems like 2busy, Judi and the Dawg know more about it than he/she does.

    A long time ago I had a house, with no mortgage, that I rented for a couple of years. All taxes, maintenance expenses and a certain amount of depreciation on the property were deductible as a business expense.

    Disclaimer: I am not an accountant, real estate professional, nor did I sleep in a Holiday Inn Express last night. I do have real property interests in two states - and I do have a CPA licensed in both states take care of our accounting and tax prep for us.
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  8. #8
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    Quote Originally Posted by Bill View Post
    Sounds like you need a new accountant to me. Seems like 2busy, Judi and the Dawg know more about it than he/she does.

    [/I]


    I have been on the phone with my accountant this afternoon about this same subject. I will hire 2busy and/or Judi and th Hound next year....because I know one CPA who needs another profession.

    I own property in my name and I have a corporation that owns property and she can't get it thru her head that you do not mix this crap.
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  9. #9
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    Quote Originally Posted by Witzer View Post
    :I know one CPA who needs another profession.
    make that 2 accountants.....

  10. #10
    Beachy Bill's Avatar
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    Wow - after reading the last two posts (by Witzer and cowboysfan) I'm glad I have the folks that I use. It's a CPA firm with two CPAs and 5 accountants - I am "partnered" with an accountant who is QuickBooks specialist and who has "Read" access to our online QuickBooks account. They are not cheap, but I am confident that they know their stuff. To me they are worth EVERY PENNY I pay them.

    I met with her for a half hour (billable, of course) this morning and have one item to update with her (via email) on Monday. Our personal taxes will be ready next Saturday and I am confident they will even stand an audit.
    Bill / Marketing Blog @ 12PM - Current project: Resurrecting my "baby" at South Baltimore..
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  11. #11
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    Quote Originally Posted by Bill View Post
    Wow - after reading the last two posts (by Witzer and cowboysfan) I'm glad I have the folks that I use. It's a CPA firm with two CPAs and 5 accountants - They are not cheap,
    Me too

    I have used them for 10 years. Personel changes have left them lacking in the personal touch. New folks have a problem reading last years file..
    You must climb this mountain. There is no elevator. ---- Don't stick your finger in the liquid nitrogen.
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  12. #12
    ABW Ambassador JudiMoore's Avatar
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    It's not that I know more than the accountant. It's just that I spent many years reviewing tax returns as a mortgage underwriter. I like crunching numbers and reading into things.
    I'm sure that the accountant was thinking about the personal schedule A deduction for mortgage interest and property taxes. Sometimes the pros only have one little speech and everybody gets the same one, whether they're smart enough to handle the actual information or not. There have been plenty of money advisers over the years who have suggested turning your property into an investment and then renting a place to live from someone else. I think it totally depends on your personal situation, so this might be an excellent move. I wouldn't be the one to decide.

  13. #13
    Member bestwebman06's Avatar
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    confusing !!
    why should the rate of interest will affect if you rent the house? it will remain constant and you must have to pay the interest in the same rate that you are paying for the last 5 years. so i don't think it can help you in decreasing the interest.

  14. #14
    ABW Ambassador 2busy's Avatar
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    The discussion is not about the rate of interest, it is about whether or not the person who is paying the interest can deduct that expense from their income taxes if they convert the home into a rental property. The rules are very confusing.

  15. #15
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    yeah...they sure are 2busy.

    i'm going to be talking to a tax attorney this week. i will try and post here if i'm told anything constructive. now i'm thinking renting my house may not be an option if they pass the affiliate tax in our state. i believe the ny law says if you own a "key" in their state, that constitues nexus. i am not quite sure if that wording is in our bill.....i wish i knew how to read and understand all this legal stuff.

    i'm totally lost now lol. hopefully the lawyer i'm going to see can shed some light on this subject. i think its a good one to discuss....with seemingly most the states wanting to pass affiliate tax laws, i would imagine many affiliates will be put in my situation: homeowner, can't afford to stay...needs options.

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