Renting out our house - tax implications

audj123 · 07-30-2010, 07:02 AM

Our house has been on the market for one year. We lowered our price a few weeks ago. We have had lots of interest in renting the house not buying it. We are very hesitant to become landlords while stationed overseas - though I have family in the area where the house is.

Do you know what the tax implications are if we rent out the house? Can we still deduct mortgage interest, taxes, etc?

Do we lose our homestead exemption for tax appraisal discount? Do we claim the rental income as additional income?

We are stationed overseas and own no other property.

TIA

sunofabeach85 · 07-30-2010, 07:04 AM

We're going through this right now, and got told we would no longer get our homestead exemption once we rent it out.

S.Lynn · 07-30-2010, 07:12 AM

We've never had any. But our mortgage is crazy low. And we rent it out for not much more. It is hard to charge much where we're from. We've always told the person preparing our taxes that it is rental and we've never had to pay taxes or anything. We've always qualified for the same things (earned income credit), too. My guess is that it will depend on how much your mortgage is and how much you're renting it out for. Good luck.

juyehara135 · 07-30-2010, 07:16 AM

You will report all your rental activtiy on a form called Schedule E. You can still deduct your mortgage interest and taxes, and you claim the rent they give you as income. You also can depreciate a rental home over 27.5 years. So, take what you paid for the home and divide it by 27.5 and you will deduct that amount yearly as well. If you have property manager you are also able to deduct anything that you pay him for managing the property(which is usually 10% of what they pay you). Also, you can deduct the insurance you pay on the home, and any other expenses you have related to getting renters including advertising. If you have any questions please pm me!

**MarisaAnne** · 07-30-2010, 07:18 AM

This is why we have our taxes prepared for us. Figuring these out is a nightmare, but they "get it" right off. It's been some time since I got the answers to these questions, so if anyone knows different do correct me.

Quote:

Can we still deduct mortgage interest, taxes, etc?

Do we lose our homestead exemption for tax appraisal discount?

Do we claim the rental income as additional income?

Yes, to all 3. I don't recall a time where the "extra" income was enough to offset the expenses associated with the house: property manager, maintenance, etc. So, really, it had little effect on our bottom line.

I think, even with the implications, it's financially in your best interst to rent the house if you can't sell, or if you would have to bring money to closing in order the sell. The housing market is slowly correcting, and I personally believe that most people will see it return to something more closely resembling "normal". This is a great time to buy, because people need to unload houses and they can be bought for a song in some areas, but it's a horrible time to sell unless you don't have to. We bought our house for less than we are likely to ever sell it, but he sellers still made $30k on the transaction.

juyehara135 · 07-30-2010, 07:23 AM

With every tax return I have ever done ( and I done over 650 last year) if you are just renting a home because you cant sale it you do not have to pay taxes on it. They usually actually have a pretty big loss which really helps you on your return!

sunofabeach85 · 07-30-2010, 07:29 AM

Sorry to threadjack but what happens with state taxes? We pay state taxes in NJ DH's HOR but the house we're going to be renting is in LA.. does that mean we'll have to file LA taxes too?

**MarisaAnne** · 07-30-2010, 07:32 AM

Quote:

We pay state taxes in NJ DH's HOR but the house we're going to be renting is in LA.. does that mean we'll have to file LA taxes too?

I don't think so, unless LA is his home of record. You'll still have property taxes associated with the house, but those are figured into your mortgage anyway.

juyehara135 · 07-30-2010, 07:33 AM

Quote:

Originally Posted by sunofabeach85

Sorry to threadjack but what happens with state taxes? We pay state taxes in NJ DH's HOR but the house we're going to be renting is in LA.. does that mean we'll have to file LA taxes too?

Just for reporting purposes. The only way I usually see people owe from rental property is if the bought it to make a porfit off of it. Honestly, you probably would not even be required to report. All state laws are different, but usually you have to have income of a certain amount before you are required to report it on a state return.

sunofabeach85 · 07-30-2010, 07:36 AM

thank you ladies!!!

audj123 · 07-30-2010, 07:44 AM

I guess we need to figure out if the rental income (including taxes on that income) would outweigh the loss of the homestead exemption. TX property taxes are EXTREMELY high as we have no state income tax.

**GiggleKitten** · 07-30-2010, 08:00 AM

Thank you for asking this question, we will be facing this issue next year and I was thinking of renting because we won't buy anything in the next 5 years.

cg~gunswife · 07-31-2010, 05:59 AM

everything you do for the rental becomes a tax deduction- things like, home warranty coverage, pest control, repairs, advertising everything. so really it usually even out.
my only suggestion is go with a property management co so they can take care of the home for you, the 10% fee is a tax deduction too ...

**MarisaAnne** · 07-31-2010, 09:24 AM

Quote:

everything you do for the rental becomes a tax deduction- things like, home warranty coverage, pest control, repairs, advertising everything. so really it usually even out.
my only suggestion is go with a property management co so they can take care of the home for you, the 10% fee is a tax deduction too ...

She's absolutely right, I forgot about those. The nice thing about using a property management company is that at the end of the year they give you a statement like you get from your mortgage lender, which breaks down the costs associated with the home. If you use a tax preparer, which I strongly suggest because figuring the depreciation is a nightmare, it makes it extremly simple.

audj123 · 07-31-2010, 09:38 AM

I think using a property manager is a given for us as we are stationed overseas. But glad to know that is deductible also.

So I have been doing some reading and it is not clear if we lose our homestead exemption if we are stationed overseas. It seems that if you are active duty overseas you can still claim the exemption?

88Mwife · 07-31-2010, 11:41 AM

I know in GA if you rent your house you still have to pay taxes on the property and such only bc my sister is renting her house out, and she has to claim the rent as income but like the others said anything she does to the house while renting it is a tax deduction and yes you can still claim the intrest come tax time..

07-30-2010, 07:02 AM	#1
audj123 Senior Member Wow, look at me go! Join Date: Sep 2007 Location: Vicenza, Italy Posts: 4,370	Renting out our house - tax implications Our house has been on the market for one year. We lowered our price a few weeks ago. We have had lots of interest in renting the house not buying it. We are very hesitant to become landlords while stationed overseas - though I have family in the area where the house is. Do you know what the tax implications are if we rent out the house? Can we still deduct mortgage interest, taxes, etc? Do we lose our homestead exemption for tax appraisal discount? Do we claim the rental income as additional income? We are stationed overseas and own no other property. TIA __________________

07-30-2010, 07:04 AM	#2
sunofabeach85 My lil man <3 I'm a posting machine! Join Date: Jan 2010 Location: Yokota AB, Japan.. Jersey girl at heart Posts: 1,110 My Mood:	Re: Renting out our house - tax implications We're going through this right now, and got told we would no longer get our homestead exemption once we rent it out. __________________

07-30-2010, 07:12 AM	#3
S.Lynn Senior Member I'm a posting machine! Join Date: Jan 2010 Posts: 1,235	Re: Renting out our house - tax implications We've never had any. But our mortgage is crazy low. And we rent it out for not much more. It is hard to charge much where we're from. We've always told the person preparing our taxes that it is rental and we've never had to pay taxes or anything. We've always qualified for the same things (earned income credit), too. My guess is that it will depend on how much your mortgage is and how much you're renting it out for. Good luck. __________________

07-30-2010, 07:16 AM	#4
juyehara135 Chris, Jill & Ben 2010 You can't touch this! Join Date: Sep 2005 Location: Fort Bragg Posts: 8,658 My Mood:	Re: Renting out our house - tax implications You will report all your rental activtiy on a form called Schedule E. You can still deduct your mortgage interest and taxes, and you claim the rent they give you as income. You also can depreciate a rental home over 27.5 years. So, take what you paid for the home and divide it by 27.5 and you will deduct that amount yearly as well. If you have property manager you are also able to deduct anything that you pay him for managing the property(which is usually 10% of what they pay you). Also, you can deduct the insurance you pay on the home, and any other expenses you have related to getting renters including advertising. If you have any questions please pm me! __________________ If God brings you to it, he will bring you through it. In Memory of Jerome Lemon KIA on Oct 27, 2004.

07-30-2010, 07:23 AM	#6
juyehara135 Chris, Jill & Ben 2010 You can't touch this! Join Date: Sep 2005 Location: Fort Bragg Posts: 8,658 My Mood:	Re: Renting out our house - tax implications With every tax return I have ever done ( and I done over 650 last year) if you are just renting a home because you cant sale it you do not have to pay taxes on it. They usually actually have a pretty big loss which really helps you on your return! __________________ If God brings you to it, he will bring you through it. In Memory of Jerome Lemon KIA on Oct 27, 2004.

07-30-2010, 07:29 AM	#7
sunofabeach85 My lil man <3 I'm a posting machine! Join Date: Jan 2010 Location: Yokota AB, Japan.. Jersey girl at heart Posts: 1,110 My Mood:	Re: Renting out our house - tax implications Sorry to threadjack but what happens with state taxes? We pay state taxes in NJ DH's HOR but the house we're going to be renting is in LA.. does that mean we'll have to file LA taxes too? __________________

07-30-2010, 07:36 AM	#10
sunofabeach85 My lil man <3 I'm a posting machine! Join Date: Jan 2010 Location: Yokota AB, Japan.. Jersey girl at heart Posts: 1,110 My Mood:	Re: Renting out our house - tax implications thank you ladies!!! __________________

07-30-2010, 07:44 AM	#11
audj123 Senior Member Wow, look at me go! Join Date: Sep 2007 Location: Vicenza, Italy Posts: 4,370	Re: Renting out our house - tax implications I guess we need to figure out if the rental income (including taxes on that income) would outweigh the loss of the homestead exemption. TX property taxes are EXTREMELY high as we have no state income tax. __________________

07-30-2010, 08:00 AM	#12
GiggleKitten Turkey, April 2006 Super Mod Join Date: Jun 2005 Location: Campbell KY Posts: 27,242	Re: Renting out our house - tax implications Thank you for asking this question, we will be facing this issue next year and I was thinking of renting because we won't buy anything in the next 5 years. __________________ Gigglekitten AKA - Mo Oz is here! The mind is everything. What you think you become. ~Buddha~

07-31-2010, 05:59 AM	#13
cg~gunswife Senior Member I'm a posting machine! Join Date: Jan 2006 Location: Kingsland GA Posts: 1,460	Re: Renting out our house - tax implications everything you do for the rental becomes a tax deduction- things like, home warranty coverage, pest control, repairs, advertising everything. so really it usually even out. my only suggestion is go with a property management co so they can take care of the home for you, the 10% fee is a tax deduction too ... __________________ Dawn Licensed GA Realtor

07-31-2010, 09:38 AM	#15
audj123 Senior Member Wow, look at me go! Join Date: Sep 2007 Location: Vicenza, Italy Posts: 4,370	Re: Renting out our house - tax implications I think using a property manager is a given for us as we are stationed overseas. But glad to know that is deductible also. So I have been doing some reading and it is not clear if we lose our homestead exemption if we are stationed overseas. It seems that if you are active duty overseas you can still claim the exemption? __________________ Last edited by audj123; 07-31-2010 at 11:12 AM.

07-31-2010, 11:41 AM	#16
88Mwife I love my Army Man!!!!!!! You can't touch this! Join Date: Sep 2008 Location: Ft. Campbell KY Posts: 9,190 My Mood:	Re: Renting out our house - tax implications I know in GA if you rent your house you still have to pay taxes on the property and such only bc my sister is renting her house out, and she has to claim the rent as income but like the others said anything she does to the house while renting it is a tax deduction and yes you can still claim the intrest come tax time.. __________________ Kalli Ann will be 5 this year!!