How to rent an apartment?

You can deduct mortgage interest up to the first $1 million. So if you have a pre-existing $800K mortgage on your first home, and you get a $500K loan to purchase the second home, you can deduct interest payments on only the first $200K of that investment mortgage.

Rental income comes off schedule E, and is balanced by your expenses (i.e. you deduct heat you provide, and lightbulbs). It is also balanced by the depreciation of the property, but then you are reducing your basis in the property, so you need to call the accountant to see which way he/she wants to play it.

I have some cautionary landlady tales in my book, but if you think your friend is not crazy, it shouldn't be too bad. You can use a standard Blumberg lease, although any real estate agent would suggest specific rider clauses depending on your situation such as when you expect to sell.

ali r.
{downtown broker}

the book: http://tinyurl.com/2ag28z

FP: I think that the mtge deduction only applies to a home that you use as a residence (gets tricky when it's part-rental, part-residence) and the max is 1.1m.

For our rental property, expenses include mtge interest, taxes, common charges, repairs, etc.. I have chosen not to depreciate the property because I don't wish the basis to be reduced. Anything that you make above expenses count as normal income for us. Any losses can't be written off, because they are passive losses (we are not FT RE investors).

"We are thinking of buying an apartment and would like to rent it out for the first few years."

Just make sure the building allows you to do this. You can rent out the apartment in a condo, but many co-ops don't allow it at all -- while most have some sort of restriction.

A primer - http://turbotax.intuit.com/tax-tools/tax-tips/investments-and-rental-property/5568.html#passive

nyc10023,not trying to send you on a wild goose chase but i thought that depreciating rental property was not optional. i could be wrong. if you're not certain you might confirm since it could have an economic impact.

opheus12 - typically yes, but we'll get to that bridge when we sell it. It's a complicated situation.

23, you absolutely can use the mortgage deduction on a secondary home that you rent out, because I did.

Here's the IRS rule: "A second home can include any other residence you own, and treat as a second home. You do not have to use the home during the year. However, if you rent it to others, you must also use it as a home during the year for more than the greater of 14 days or 10 percent of the number of days you rent it, for the interest to qualify as home mortgage interest."

ali r.

Ali, that's great on secondary homes, but I don't think that's what the OP was asking about.

Lorenzonyc - my suggestion is that you speak first to 1) your accountant about these issues and 2) the management company of any building you wish to consider. I mean no disrespect to the posters on this chain, several of them are known to regular streeteasy readers for the excellence of their insights - but the questions you pose are highly specific to the building you are in, plus your tax situation.

Also, please be certain to consider whether or not the rent you collect will be adequate to cover your expenses - otherwise, you may end up subsiding your friends' lifestyle to the tune of thousands of dollars per month. A good place to start is looking at rental rates in the building(s) you are considering (streeteasy is excellent for this), plus a reputable broker.

Good luck!

FP: But the OP may not need to use the secondary home mtge deduction. As a pure rental property, you can deduct mortgage interest anyway on the expense side.

I'm still confused on this issue. If you rent out an apartment you own, and don't live there at all during the year, does the mortgage interest incurred on purchasing that apartment get deducted against any rental income you obtain? Seems like as long as your total mortgage interest expense (across all properties you own) is under the total deductible cap, all of the interest should be deductible (since it's considered a rental expense)?