Tax Question regarding Real Estate Taxes Paid on Property. Thx!?

Question

Okay I am 20 yrs old, single, never married, no kids. Washington state resident. I just bought a duplex (resedential real estate w/ tenant) It IS my primary residence and I am suppose to live there although I don't. No one knows that. I work under the table (no tax deductions) so I have no proof of income whatsoever. I pay interest for 2 yrs w/ the mortgage I got. I heard a lot about claiming "tax deductions" on the interest, if I work under the table and possibly will get a second just making under $800 a month and I will claim 0. What will the tax deductions on the property give me? Will I get a bigger tax return? Will they pay me back some of the taxes I paid to the mortgage company? Please explain it to me. I deeply appreciate it. Thank You!

Well I do appreciate you honesty. I am a full time college student in order to qualify for financial aid I cannot have a job and I am afraid if I do claim they will make me pay for financial aid which brings me harm because I cannot pay my bills. So I work under the table, I obtained a loan w/ no proof of income called stated income loan (my credit is wonderful) So basically because of my credit I got the loan. I am not trying to lie or cheat, I am not trying to get a easy way out. It was an innocent questions. Thank You =)

Answer 1

while part of what said here is correct you would have no tax liabiltiy if you only report the 800 a month income. But they forgot to mention that if you report the under the table income you will have to pay uncollected social securtiy and medicare tax (ie self employment taxes) on that income and there is no way to offset this tax unless you get earned income credit by claiming a child or qualifying for your self.

You should see instructions for
Schedule SE from www.irs.gov
and calculate the amout for that sheet

and just to add don't try to hide this income irs will find out one day.

and as far as federal tax return goes you can deduct to full amount of mortgage interest paid and also taxes paid.

Answer 2

You will eventually have some tax issues...bad ones too. As the other people have said, you are earning an income without paying the taxes due. You wonder how the IRS will find out? Easy. The mortgage company will file with the IRS a Form 1098 reporting the interest and real estate taxes you paid. the IRS will match up this info with your tax return., but will not have one from you. they will ask you for one. When you don't report the income, they will agin become curious how a college age person can afford a mortgage without any income. That will be the beginning of the end for you.
As for your question, the taxes paid to the mortgage company are for real estate not income, so will not be refunded. If I were you, I would risk running afoul of the student loan officials rather than the IRS. Report the income, with the appropriate expenses. If the interst and taxes exceed the income, you could have an Net Operating Loss which can be carried over to the next year.

Answer 3

Property taxes and Mortgage interest are deductible against ordinary income on your federal tax return. Since you own a rental you need to file a schedule E with your 1040;

Since it is a duplex 1/2 the mortgage interest can be deducted as personal mortgage interest and 1/2 the property taxes.

The other half of the above plus 1/2 the repairs and maintenaince can be deducted on the schedule E as expense against the rental income. You will also be be able to deduct 1/2 the depreciation (1/27.5) of your basis (costs to buy - initial land value) over the the next 28 years.

With all that being said if you are not reporting your under the table income then you will not have much to deduct against. Some losses can carryover for future years income. Now it may be possible to qualify for earned income credit which means you get back more than you paid, this is for low income but the schedule E might disqualify you.

One point of clarification you do not get back money you paid for property taxes, you can only get back money for taxes you paid (except earned income credit) but the property taxes ( and other deductions) reduce the income on which you have to pay tax thus allowing a refund if you were all paid up before hand.

This may carry over for your washington state return but i do not know their laws.

On a personal note, it may be worth reporting your under the table income as you have deduction to wipe out the taxes, i think it would be a red flag to have rental properties without any other source of income until the rentals make a lot of profit.

Answer 4

You are breaking the law. Unless you want to go to jail, you should start reporting your income. You are the reason why honest taxpayers have to pay increased federal and state taxes. Why do you think you are entitled to tax credits when you don't pay any taxes? Since you don't report your income, have you ever filed tax returns?

If not, you could be found guilty of tax evasion and fraud. One day someone may report your dishonesty. You could be sentenced to a federal prison for a few years, pay a hefty fine, plus interest on the unreported income.

When it's time for you to retire, you won't have any SS credits, therefore you will not receive monthly benefits.

Why are you lying about living in a residence where you don't actually live? What do you have to gain from this deceit? When you decide to sell this property, you will lose the tax benefits because you lied about this house being your primary residence.

How did you obtain a mortgage with no work history or proof of income?

Answer 5

Okay, ignoring the fact that you are being paid cash under the table which should be reported as income and a few other facts about the way you are handling your tax matters, you would be able to deduct your property taxes and mortgage interest on your home as itemized deductions. However, there probably will not be much benefit to you this year since your first mortgage payment is probably due November 1.

Based on you claiming only $800 a month of income, you should have no tax liabilty as long as your total itemized deductions are at least $6500 in 2007.

Based upon your question, since you do not plan on living in your home, you should treat it as a rental property.

Answer 6

Sounds like you are trying to get "under the radar" of the IRS and Washington State Tax Commission. I would suggest you consult a specialist in Federal and Washingon State taxes. Only they can advise you on how to "circumvent" tax laws.

Answer 7

No, it should be the other way around. There should be no such thing as "property tax" or any other tax on our possessions that we paid taxes on WHEN WE BOUGHT THEM!