We are relocating and don't want to sell the house right now.?

Question

The market is too soft and we will not get what it is worth. We have decided to rent out the property and will make enough to cover the mortgage and make a little income. What are the tax implications for an investment property?

Answer 1

As others have said, don't even think of doing this without a property manager. Some states require absentee landlords to have a local contact so you may not be able to avoid this even if you wanted to. Typical management fees are around 10% of gross rents. Some charge extra for placing tenants or processing evictions; I avoided those as plenty of competent property managers don't charge those junk fees.

You'll file Schedule E with your 1040 to account for the rental income.

All expenses are deductible -- property management fees, repairs and maintenance, insurance, utilities that you pay, phone calls to the property manager or tenant, property taxes and mortgage interest. One warning here, though. Due to the way that the current laws are written, unless you convert the property to rental in the first 15 days of January you will not be able to deduct most of the expenses in the first year. You will be able to deduct property taxes and mortgage interest but nothing else.

You also deduct depreciation on the house itself, but not the land. The IRS will not normally question your numbers on the land/house allocation as long as it isn't too unreasonable. If your property tax bills apportion it, using that percentage is virtually always accepted. You must depreciate it straight line with a 27.5 year life but you don't need to use a "salvage" value.

The best situation provides you with a modest positive cash flow AND a tax write-off, usually owing to the depreciation. To preserve the tax deduction, you must "actively participate" in the management of the property. Such things as reserving final approval of all tenants and signing checks for major repairs will keep you on the IRS's good side there.

There are other tax consequenses when you sell. Although up to $250,000 ($500,000 if married filing jointly) of the gain on sale of a primary residence is excluded from capital gains taxes, this will no longer be your primary residence so you will lose that exclusion when you sell unless you move back into the property for at least 2 full years prior to the date of sale.

Also, the depreciation that you took while renting it out must be subtracted from the cost basis when calculating your gain -- what the government giveth, the government taketh away. This will apply even if you do move back in to the property for 2 years to regain the exclusion -- but you'd be flush with cash in that case so it won't hurt all that much.

Under current law, long term capital gains are taxed at a maximum rate of 15% so that will take some of the sting off but do be prepared for a large tax bill in the year of sale when you do sell. Also keep in mind that taxes are due and payable when income is earned or gain is realized. You need to file a 1040ES in the quarter that you sell and pay the 15% tax on the gain to avoid penalties on April 15th.

Answer 2

Renting a house long-distance is very difficult. You will need a good management firm which won't rip you off. It's possible that if the market is soft, you won't get enough rent to cover the mortgage payment or that it will be un-rented too often/too long for you to cover the payments. And just remember, you need to live in your house for 2 out of the last 5 years before you sell it in order to get the $500,000 (per couple) tax break.

Answer 3

If you sell after a two year period, not living in the house in past two years, you will have a tax liability on any profit. However, you will be able to adjust your income for any repairs, taxes, or expense related to the rental property.
If you sell before two years pass, any profit will be included in the purchase of a new home with no tax consequences. Your tax consultant can verify this plus any further suggestions. Any rental income above expenses will be taxed as regular income.

Answer 4

Best advice is to find a company to manage the property for you after u move away. Someone has to check up on it and make sure it is not being trashed and they will find good renters for you. If you use TurboTax, it will walk you through the process of doing your taxes. KEEP ALL YOUR RECEIPTS ON THIS PROPERTY. That is the best advice I can give you.

Answer 5

incorrect. fairly all those who needs to relocate on your section wll be operating with a realtor on your section and ought to have get acceptable of entry to on your itemizing. Plus, many realtors enable human beings to examine MLS by potential of their website in the previous easily chatting with someone.