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Home > Calling the tax/financial experts out there!

Calling the tax/financial experts out there!

January 12th, 2009 at 03:05 am

So this is not an urgent "I'm-trying-to-file-taxes-and-need-to-know-now!" kind of question... more of a planning question.

We are planning to move in the next 6-8 months. It is CLEARLY a terrible time to try to sell our house.

So, we are thinking of renting our house in this town, and then leasing a place for us to live in the new town. Problem is, we probably can't charge enough rent for the house we own to make the mortgage payment.

So say it's something like this: Our mortgage is $2000 a month. We can collect probably $1000 a month in rent. We'll rent a house to live in (new city) for about $1400 a month. NOT REAL NUMBERS.

In the new town, I can make A LOT more money (like $1500 per month!), and husband's commuting costs will go down. Significantly. Like $360 a month.

Can we still write off all the mortgage interest on our house, even if we're not living in it? (it won't be like we'll own a second house right away... and given the current financial situation, it will likely be years!) Since we'll be renting, can we write off the new roof that we need?!

Any better ideas? It's the best we can come up with. Of course, if the market suddenly turns and we can sell our house for a reasonable price, we will. Right now the value is probably $30,000 below what we paid.

And we DO need to move. I don't want to give away too much, but there are lots of reasons. Because of the ages of the kids, it has to be this summer. Again, we do have several months to be planning.

Help, financial geniuses!

3 Responses to “Calling the tax/financial experts out there!”

  1. lizajane Says:
    1231774461

    Disclaimer: I am not a financial genius, but I will be doing taxes for others this year for the first time. You would need to report your rental income and mortgate interest as well as repairs, etc on Schedule E. The income (or loss in your case) carries forward to the 1040 as an increase (or decrease in your case) to income. The roof expense would need to be depreciated over several years (not sure how many), and the depreciation would also go on Schedule E. I'm a little fuzzy on how this all comes into play when you later sell the house. Maybe someone else will be along with more info.

  2. monkeymama Says:
    1231777775

    You'd report rental income and then expenses. (In addition to mortgage and property taxes which you get anyway, you'd get repairs, insurance, and depreciation (new roof and value of home).

    The good is the expenses will wash out the rental income. The bad is you can't report any rental losses on your tax return. So you would probably lose your mortgage and property tax deduction in the end.

    Even worse, few people realize the "owning home for 2 of last 5 years" is OUT, beginning 1/1/09 to get full tax exclusion on sale of home. May not matter since you don't have a gain, but if you end up selling for a gain you may owe tax. (The tax could be large if you have only owned the home a few years; small if you have owned it many years).

    In your case, it *could* make more sense just to keep the house as a "second home." Then you could deduct mortgage interest and property taxes. You could avoid the headaches of a renter. The tax savings could be high. You'd still have tax issues if you sold for a gain though.

  3. jIM_Ohio Says:
    1231788784

    MM reply was what I thought. The error on the first reply was that a passive loss (rental income) cannot offset income which is earned (passive loss can offset passive income only). The IRS is very clear about passive loss rules.

    You would need to factor in housing depreciation on the taxes to get the best answer (the depreciation was not mentioned in post, and not by MM either).

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