Landlords paying taxes on rental income

Started by newbuyer99

over 17 years ago

Posts: 1231

Member since: Jul 2008

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Since I never got an answer to this, and since at least one other person appeared to be interested, I am reposting in its own thread. Question for perfitz, maulraux and other landlords. Don't you have to pay taxes on your rental income? If you live in Manhattan, I imagine those taxes approach 50%. How does the rent vs. buy math work in that context? In other words, can you show current apartments for sale that you think you could buy, rent out and have the after-tax rent income cover your ownership costs? This is an honest question, I am quite curious how this works, what I am missing, etc., since I would definitely consider buying investment properties and renting them out (in NYC or elsewhere) sometime in the future. Thanks in advance for any information.

Response by ritchi

over 17 years ago

Posts: 61

Member since: Aug 2008

Can you deduct the cost of fixing the mold in the shower caused by a negligent tenant?

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Response by stevejhx

over 17 years ago

Posts: 12656

Member since: Feb 2008

"Don't you have to pay taxes on your rental income"

Not only income tax, but unincorporated income tax or UBT, as the case may be.

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Response by csn

over 17 years ago

Posts: 450

Member since: Dec 2007

newbuyer99 if you really want to know the overall ups and downs for buying real estate in a simple to understand book go to the library or buy for about $20 "Rich Dad's Real Estate Advantages by Lechter and Sutton". This will tell you about taxes and that you can basically deduct everything in an investment including the cost of fixing the mold in the shower. I have been an investor in real estate for over 35 years for both residential and commercial. And the answer to the question on taxes is it depends. One big thing is you depreciate the property which can give you an actual savings on your taxes.

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Response by echoecho

over 17 years ago

Posts: 8

Member since: Apr 2007

actually depending on how much you bought it for and how much you are renting it out for it might not cost you any tax on the front end. For example, you get to deduct the property taxes, mortgage, maintence charge, management fees, etc and depreciation (the cost of the property divided by 27.5 if it is a residential rental property per year). So at the end you may net a loss which is carryforward if the expenses exceed the rental income if you were a passive owner (if you were active you can take the loss on your return).

This may be one of the reasons some buy because the renter is paying for all the expenses (if their rent covers all it) and any excess you get is pocket money for yourself.

Now in the good ole days? while this was happening your property was also appreciating in value. Although if it was a loss on sale you get to deduct it as investment property loss whereas you can't claim a loss on if it was your personal residence/property. The IRS requires you to report gain on sale of residence but you are not allow to claim a loss on sale of residence.

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Response by newbuyer99

over 17 years ago

Posts: 1231

Member since: Jul 2008

csn and echoecho - thanks for comments, very helpful. I didn't realize you could *assume* depreciation of cost/27.5 and deduct that. On a hypothetical $1MM apartment, that's $36K/year, which is huge. Appreciate the book recommendation, too. I will certainly do a lot more serious research down the road if/when I get serious about buying investment properties.

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Response by shamrock

over 17 years ago

Posts: 89

Member since: Nov 2007

http://www.irs.gov/publications/p527/index.html

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