We live in a townhome (CA), rent out a condo (AZ), and are looking to buy another townhome to rent (NC)? Would the mortgage interest of all of these properties be deductible?? Is it limited to one rental only???
2006-07-30 04:31:21 · 4 answers · asked by Finnigan 1 in Business & Finance ➔ Renting & Real Estate
In general, mortgage interest is always deductible. There are some exemptions such as phase outs & a cap. Aside from those, it doesn't matter if there is a house, rentals or both.
In addition to interest, you can also take a deduction for depreciaiton on the rentals, but not the residences. All advertising, repairs, services (lawn mowing), etc are also deductible for the rentals, but again, not on the residences. property taxes are deductible on both.
If you are using the properties strictly as rentals, then they are classified as "trade & business" properties, not "residence" under the internal recenue code- note that the intended use matters, not the distinction between residential & commercial. As such, just about anything that you pay out is deductible as an current period expense or depreciable in the case of capital expenditures.
If you are using the properties as personal residences during part of the year & renting them out for the remainder of the year, then there are some additional calculations to do.
ROGER V:
Thanks for your support, but your addemndum is not quite right. Under the IRC, only "trade & business" properties, which include rentals are depreciable. You do not get a depreciation allowance for your personal residence. The IRC has different recovery period for residential properties that can be depreciated vs. commercial properties that can be depreciated. In addition, any part of the fair value that can be allocated to personal property (i.e. appliances, furnishings, etc) can be depreciated on an accelerated schedule with a recover period that ranges from 3-7 years. This allows you to increase the present value of your tax shield.
2006-07-30 04:40:14 · answer #1 · answered by Homer J. Simpson 6 · 0⤊ 0⤋
Mortgage interest is only deductable for your personal residence and should you be lucky enough to have one a second reidence as well. No rental properyties at all.
Of course, if you refinance you personal residence such that you extract enough money out of it o that you can buy rental property with the extra monies then that mortgage is deductable. This would be subject to the limitation of a $1 Million dollar max mortgage.
Good luck
2006-07-30 04:39:02 · answer #2 · answered by Carl 3 · 0⤊ 0⤋
You can deduct the interest on your primary and secondary residence. You can rent the second home but it has to have at least some partial "personal use" to qualify as well.
The interest on residence three or more can be deducted if the loan proceeds were used for "business" or "investment" purposes and can't be comingled with your personal funds. Otherwise, the deduction would be disqualified. I personally wouldn't keep any rental property in my name and at the very least would form a trust to hold the property.
2006-07-30 05:41:24 · answer #3 · answered by Sam B 4 · 0⤊ 0⤋
JW's answer is accurate; I'm adding that you also have $100k in home equity. properties are deductible on different schedules when they're rentals vs. primary / secondary, FYI - the CPA / tax pro will know about that.
You'll also want to claim depreciation on any rentals over 27.5 years.
2006-08-01 19:49:46 · answer #4 · answered by rogerv_dotcom 1 · 0⤊ 0⤋