Marked hobby because even tho I had revenue of $80,000 on 3 properties, my wife reports back that it was a loss. Each has a mortgage, insurance, garbage bill, and tax bill. $80K and she says these are being run at a loss. Dang, for reward I guess I get the pay down of the mortgage and that equals equity.
Actually a big chunk was supplemental taxes on 2 of the properties that caught up the taxes to the new rate from the purchase date. Should have been some of the profit margin.
[This message has been edited by FriendGregory (edited 03-09-2015).]
I would suggest that you run, do not walk, to see your friendly neighborhood CPA. A 'loss' is actually a good thing ... you can have a loss for 3 consecutive years that you are running a business that you report on Schedule C (or something like that). The loss will reduce the amount of tax you owe from your regular income. Over the long-haul your renters are paying off your mortgage.
I would suggest that you run, do not walk, to see your friendly neighborhood CPA. A 'loss' is actually a good thing ... you can have a loss for 3 consecutive years that you are running a business that you report on Schedule C (or something like that). The loss will reduce the amount of tax you owe from your regular income. Over the long-haul your renters are paying off your mortgage.
I think the three year limit only applies to home based businesses that are claiming part of the home as a business expense. I'm pretty sure there's no limit to outside businesses.
Actually my wife is an accountant (not a CPA) and a IT manager. I do plan to have a CPA also scan the completed return but, there is some reasons that "best business practices" are not followed in all of what we do. Family stuff. Think mafia, color it Chinese yellow, then just brothers, sisters, and "cousins". I do make a point of making sure all monies are taxed or the bigger mafia(IRS) will eventually punish you.
Marked hobby because even tho I had revenue of $80,000 on 3 properties, my wife reports back that it was a loss. Each has a mortgage, insurance, garbage bill, and tax bill. $80K and she says these are being run at a loss. Dang, for reward I guess I get the pay down of the mortgage and that equals equity.
Actually a big chunk was supplemental taxes on 2 of the properties that caught up the taxes to the new rate from the purchase date. Should have been some of the profit margin.
something is not right.. you earned 80k so divide by 3 then x by 2.176 =58000 after uncle same takes his pie.. what is the mortgages on these things, it have to be over 2200.00 each (loan/tax/insurance). And my math doesn't deduct for cost you get to write down..
something is not right.. you earned 80k so divide by 3 then x by 2.176 =58000 after uncle same takes his pie.. what is the mortgages on these things, it have to be over 2200.00 each (loan/tax/insurance). And my math doesn't deduct for cost you get to write down..
It is actually pretty easy to make $80k income disappear on 3 rental properties. Between mortgage interest, possible mortgage insurance premiums, insurance, property taxes, Rental license, inspections, utilities, and any other expenses it goes quickly. Then on top of that you have depreciation on the buildings, which adds up fast, also. It's a good thing to have a paper loss when it comes to lowering your tax liability. It's also done on a schedule E not a C for tax purposes.
P.S. I also have 3 duplexes and do taxes
[This message has been edited by doug.s (edited 03-09-2015).]
Then on top of that you have depreciation on the buildings /snip
I'm in Canada, so ymmv, but is depreciating a building a good idea? I was told by my accountant never to depreciate a building because you will get hit extra hard with capital gains tax when you eventually sell. Don't know if that applies where you are, but the sale of any home or property in which you do not personally reside (ie rental property, cottage, business property, etc) is open to capital gains tax here (there is a minimum, but I'm not sure what it is).
Hi DANGERUS, lets discuss the depreciating factor. Right now it allows equity to build and almost no effect on my current income, the income could otherwise drive us into higher tax brackets. If selling well after depreciating, it becomes long term investment and in the USA that dollar is taxed at a lower rate than someone making a higher earned income. If we were to sell, it would be when retired and our income would be lower than our earned income( I am a mechanical engineer and my wife an IT manager). Most likely, our son would sell after we die and he would get the step up in basis anyway. I did not want to depreciate the first house, I wanted to have the option to sell and buy somewhere else but, as time has gone on, the original sales price is change compared to current value making my preference less valid as the years go by. The margins for rentals in the San Francisco bay are low compared to most places. You pay too much to get the property and rents are only so high, the profit is less than most places.
Dang how things have changed in a couple years. No son to inherit, about the time he was supposed to be in college, I started making the money that was going to pay for it(my timing was better than I thought), and now a $10K or $20K bill is not at all frightening. In the last couple months, evicted a family that annoyed me, took that loss of income, paid someone to do most of the work repairing and refreshing it, paid property taxes(38K), and still had money to "lend" my sister until her property sells.
Hi DANGERUS, lets discuss the depreciating factor. Right now it allows equity to build and almost no effect on my current income, the income could otherwise drive us into higher tax brackets. If selling well after depreciating, it becomes long term investment and in the USA that dollar is taxed at a lower rate than someone making a higher earned income. If we were to sell, it would be when retired and our income would be lower than our earned income( I am a mechanical engineer and my wife an IT manager). Most likely, our son would sell after we die and he would get the step up in basis anyway. I did not want to depreciate the first house, I wanted to have the option to sell and buy somewhere else but, as time has gone on, the original sales price is change compared to current value making my preference less valid as the years go by. The margins for rentals in the San Francisco bay are low compared to most places. You pay too much to get the property and rents are only so high, the profit is less than most places.
Yeah... I use depreciation pretty heavily as well.
I bought my house in Florida in 2003. Two years before I knew I was going to be moving out of it, I totally renovated the entire house and kept ALL the receipts. I had about 50k in receipts with which to claim, plus 40k I had spent on a home addition that I had done in 2007. I was able to claim all of it in depreciation... I'm not sure really how much I'm getting for each thing, but I basically broke out the expenses by individual room renovation... as I would have if I had paid someone to do it for me.
