[finney10]

I have an option to live cheaply in my in-laws new home for a few years before they move down after retirement. I was thinking about renting out my house while doing so. The only problem is I would only be able to charge what I owe on my monthly mortgage. I would not be able to get much extra. How does renting change how I pay taxes? Would the $400 a month I save by staying at my in-laws be worth it after changing my house to a rental property? Thanks,

[RickJ]

If you are able to
1) get good tenants, and
2) deal with the maintenance issues,

Then I suggest keeping it and trying it for a year or so. The tax benefits are fantastic. You'll basically be able to show a loss for up to several years, the amount of which will be reduced from your regular income (I am speaking of US Taxes).

[AtlantaTaxExpert]

Finney10:

What Rickj says is accurate, though there is actually no time restriction for claiming losses as he implied. There are passive loss restrictions, but only if your adjusted gross income exceeds a certain level (phase out begins at $100,000).

You need to report the rental income and all expenses on Schedule E. Even if your rent about covers your mortgage payment (which probably includes an insurance and tax payments paid out of escrow), you will still show a loss due to the depreciation writeoff.

The complexity of this process virtually demands that you use a tax professional to prepare your return. He may charge several hundred dollars to prepare the return, but it is money well spent to ensure the return is prepared correctly.

[RickJ]

I was not implying a time limit on claiming a loss, but just pointing out that even if you do get a profit, because you are deducting the depreciation, that you will show a loss to the IRS... and likely for several or even many years.

[AtlantaTaxExpert]

Sorry, no insult intended. That's just the way I read your input.

ATE

[finney10]

Thanks for all of your help.

[AtlantaTaxExpert]

Glad to help!