questions about interest on mortgage pmts. and depreciation value....?

Question

I am a 1st time home owner, boy what a chore, and I was wondering, how much, what percent of your interest paid in on your mortgage do you get back at income tax time, and how do they figure the depreciation value of your home? Even if it goes up in value, do you still claim the depreciation at taxes?

the house is a big 4 plex, i rent out 2 of the units live in one and the 4th is not yet complete, so i guess it could be a form of business, but i did the homestead thing with taxes for this year

Answer 1

Wow! - You have a great opportunity here and it doesn't seem like you realize that. Business expenses are treated much more favorably than personal expenses so the 3/4 of this property that are rentals will help you take deductions that you wouldn't take as a homeowner on the entire property.

First the real estate taxes and interest would be 100% deductible either way but since you are dividing it some will go on your Schedule A and some will go on your Schedule E (for rental properties). Where you will benefit is that any other expenses on the rental portion can ALSO go in as expenses on Schedule E to offset the rent that you collect - advertising to rent the units; pest control; utilities; maintenance; bank charges on the checking account for the rentals; lawn service and YES depreciation. Depreciation will be calculated even when the property goes up. The depreciation is calculated by assigning a portion of the purchase price to the land (not depreciable) and the building (depreciable). If you just recently purchased your appraisal will have the breakdown. After determining what portion is the building take the square footage of rental over the total square footage and get a percentage, multiply this percentage by the total amount assigned to the building. Use this number and divide by 27.5 (this is the "life" of residential real estate) - This is the amount you will take as depreciation expense on your taxes. Now, keep in mind that this reduces the basis of your property - that means that when you sell it you will pick up a larger gain than you would if you were not depreciating. However, the IRS has a policy that says if youhave income producing depreciable property and you DON"T depreciate it - they will still consider the basis reduced when they calculate the gain - so definitely - use your depreciation deduction.

As you can see the rental properties can be much more involved than just your straight run of the mill 1040 so you may want to seek professional (not H&R Block) help with your return (which you can also put as an expense to the rentals :-)).

Hope this helps if you have more questions/details please post and we will try to assist.

Answer 2

To get the mortgage interest deduction, you would have itemize. In other words, you would need to use Schedule A as your deduction instead of using the standard deduction. On Sch A there is a line for mortgage interest, there you would input from the 1098 that your lender will send you with the amount of mortgage interest you paid for the entire year. Thus you'll be able to deduct all interest you paid. But can only take advantage of the deduction if your itemize deduction is larger than the standard deduction.

You can depreciate the portion used for renting the house out, you can then depreciate so that you could decrease the rental income you have along with other expenses you incurred, such as insurance, maintenance, or repairs. You would use Schedule E for rental properties.

Answer 3

Well if you want to depreciate your property, you are going to have to file Schedule E, which is the form for reporting rental income. You take your rental expenses (including mortgage interest) against the money you earn. I would imagine that you would have to apportion your interest between your itemized deductions and Sch. E since you live in the home, but I'd need to look into that.

Are you running a business out of your home (i.e. do you have an office in your home)? If you are running a rental business, you could claim you have self employment earnings, which could net you savings in a whole other direction. Your question is loaded and there are scores of answers depending on your facts and circumstances that could net you significant tax savings. I recommend calling a tax professional. Contact me if you can't find anyone else, I work for a CPA firm in Mclean, VA.

Answer 4

First off Congrats on being a home owner. Now for the bad news you do not get any of your interest back. However if you itemized your taxes you can use the interest paid to lower your tax bill. The amount you may claim depends on your tax bracket. If your house is your personal residence only there is no such thing as depreciation.You get that only if you run a business out of your home. Sounds like to me you need a good accountant to help you. Good luck

Answer 5

You deduct all your mortgage interest for a year and all your real estate taxes paid from your yearly income - then depending on your tax bracket you get back portion of that money back.
And no - unless you use your home as a place of business you do not claim depreciation on it. And if you do use it like that - it's a whole different story.

Answer 6

Your mortgage company will sent you a statement at tax time to that will tell you the amount of intrest that you paid in for the year. Save it and take it with you when you have your taxes done.