I am trying to determine the feasibility of renting the house I own, given the tax/mortgage implications. Any help here would be appreciated!

-I live in the state of MA. I belive i would have to pay tax on my rental income, could someone provide more details on that?
e.g. my current monthly mortgage is 3300$, and my monthly rent would be 2500$. So i am in effect renting at a loss.

Would i have to pay tax on my rental income, if so, how much? Would i be liable to any tax breaks as a home owner when i file my taxes?

Thanks!

Fr_Chuck

You would be renting at a loss, you only pay taxes on the net gain, after payments on the house, repairs and the such are done.

also I guess I would wonder why you would rent at a loss and not try to rent at the value. If you are losing money you may consider selling the house.

I will not get into all of the rules of business of the IRS but being in business to make a profit is normally one of them, if you are not charging a rent higher than your known expenses, I wonder if they would accept it if they would audit it. ( but that is only thinking out loud)

msbtax

Thanks for the response. Yes, the situation is not ideal, selling was my first choice, but is not working out due to the way the real-estate market is in Boston. So i am considering renting, and again due to the inventory available in the area, renting at the value is not seeming feasible. Not many ppl would be willing to pay $3300 in rent!

So, to be clear on your response:
1. If I rent at a loss (i.e rent is lower that my mortgage, utilities, taxes, etc inclusive), I don't need to pay taxes on the mortgage income?
2. Can I still claim my mortgage as a tax deduction, in the same way I did when I was a owner?

AtlantaTaxExpert

Fr Chuck is correct; rather than rent at a loss, you should try to sell the house.

If that is not possible, you can deduct the mortgage interest, plus other miscellaneous costs like mileage to collect rent, repair and maintenance costs, plus the depreciation on the house.

It is likely that renting the house will produce a sizeable negative number on the Schedule E and on the front of your tax return. You will be able to deduct ALL of the negative number if your adjusted gross income from all other sources of income is less than $150K.

If your income EXCEEDS $150K, then your losses are limited to the amount of rent to receive. The other losses accumulate and carry forward until you hit a year your income drops below the $150K threshold, or until you sell the house.

Also remember that, if you convert the house to a rental property, you LOSE the $250K ($500K if you are married) in tax exemption you get when you sell the house.