I am buying a 2nd home in feb 08. The 1st home is being rented out which pays 80% of the mortgage. Will I be able to itemize the interest/property taxes on both homes for 08' tax return?
2007-11-29 07:52:24 · 7 answers · asked by Mark M 1 in Business & Finance ➔ Taxes ➔ United States
When you buy your new home, it will become your primary residence. You deduct the mortgage interest and property taxes just like you have done in the past for your old home.
If you lived in the old house at all in 2007, allocate the mortgage interest and property taxes to months of personal use and put them on your Schedule A. When you put the old home up for rent, it changed from personal use property to business use property. The mortgage interest and property taxes allocated to the time it was a rental will go onto a schedule E, not on the A, where you will also report rent received. There will also be deductions for the rental (repairs, depreciation,...) that you could not take when the property was personal use.
If you don't normally use a tax professional for preparing your taxes, it may be worth it at least to get going. Important you calculate the depreciation basis correctly and take all the expenses to which you're entitled.
2007-11-29 08:17:16 · answer #1 · answered by Knightly 2 · 0⤊ 0⤋
I am interpreting your question to mean that you currently have a home and will be purchasing a second home in 2008. You plan on renting your first home.
If this is correct, then you will be converting your first home to a rental property in February 2008. Up to the date you convert your home to a rental, you can take your mortgage interest and real estate taxes on Schedule A. Of course, for your second home, all the mortgage interest and real estate taxes are deducted on Schedule A.
From the date you convert your first home to a rental, you will show your income and expenses of the rental on Schedule E. You should study the instructions to Schedule E to determine what expenses are allowable. You should also study about what happens when you sell the first home. If you wait more than two years to sell this home you will lose the exclusion on capital gains that may be available to you.
If you are renting the property to a relative for less than the market value, then you will not be able to claim a loss or carry that loss forward. In order to claim a loss in the current year you must charge the prevailing rent and have income under the a limit for passive losses.
2007-11-29 20:48:45 · answer #2 · answered by ninasgramma 7 · 0⤊ 0⤋
As soon as you started renting it, the 1st house is no longer your home. Interest and taxes for rental property will be listed on schedule E, not schedule A.
The 2nd house/home would still go on schedule A.
Dr. Deth's comments are excellent...except that if you have a substantial loss, this may be limited on what you can claim on the current return if your other income is too high. (You don't lose the loss, it carries forward until you sell the property.)
2007-11-29 15:59:20 · answer #3 · answered by Anonymous · 3⤊ 0⤋
the mortgage int on the 2nd house would be reported on Schedule E - rental property - you'll also be able to deduct depreciation, real estate taxes, homeowners/liability insurance, any utilities you pay like water,sewer,trash, any maintenance or repairs. In the first full calendar year, you'll probably get a good tax loss for it - make sure you eventually get the rent up to a point where you have positive cash flow - doesn't make any sense to have a rental property that doesn't pay for itself - make sure renter has renter's insurance for his possessions because your insurance doesn't cover the cost of their possessions if house house burns down - it only pays to rebuild the house
2007-11-29 15:59:03 · answer #4 · answered by Anonymous · 1⤊ 0⤋
One additional caveat.
The 1st home must be rented for fair market value or higher in order for you to claim a loss on the first home.
If you are renting it for below fair market value the best you can do is break even.
2007-11-29 16:14:19 · answer #5 · answered by Wayne Z 7 · 2⤊ 0⤋
If you don't know the answer to questions like these, you need to hire an accountant who can serve your best interests. Renting properties can get tricky. It's worth the $ to hire an accountant.
2007-11-29 15:57:32 · answer #6 · answered by bettyrubleinspurs 4 · 0⤊ 0⤋
yes you can, because the rule states that anything before march 08, is overruled as long as you declare it. so go declare it to your officials.
2007-11-29 15:56:20 · answer #7 · answered by n0thsa . 1 · 0⤊ 4⤋