About to invest in first property - Rental deduction question

[Jeremy Segermeister]

Hi All,

I'm narrowing my focus and strongly considering buying a condo in Maui as in investment. This will be my first investment property. Two part question.

I have two options for the mortgage - classify it as a 2nd home, or classify as an investment. The mortgage brokers said that the new mortgage rules allow me to classify it as a 2nd home and take advantage of lower interest rates, as long as I stay in the property 14 days a year. I can still rent it out.

In my analysis, I am assuming I can write off:

• Building Depreciation (32% of purchase price over 27.5 years)
• HOA
• Utilities (cable/internet/water/electricity)
• Property Manager
• Mortgage Interest
• Property taxes

If I take the lower interest rate associated with the 2nd mortgage loan, will I then lose all of the deductions associated with an investment property?

Also, just want to make sure I am understanding the impact of the deductions, using some assumptions:

• Annual Gross Revenue: $50k
• Annual Deductions from above: $48k
• Annual Gross Profit, taxed at my marginal tax rate (~44.3%): $2k

So even if the property only cash flows $2k/year, I will still get additional cash flow from the $48k in deductions (I can change my withholdings or get a refund)

Annual savings from deductions - ($48k * marginal tax): $20,400

My total profit from this property for the year should be ~$22k, correct? I'm a bit confused because in a brief email exchange with my accountant, he said that I will not be eligible because it will be considered passive income and since I make over $150k, I can't deduct losses. I think he misunderstood my email so want to check here (maybe I need a new accountant?).