First Year Investor Tax Question

[Joseph Morell]

Hey guys,

I'm sitting here pouring over my tax documents getting ready to drive them up to my CPA, and although I'm sure he will file them correctly, I was hoping to gain a better understanding of them before I file.

First question is how this side of my income will be taxed. Specifically, my property manager has listed income as the full amount of monthly rental income, and my expenses as the property management fee (9%). While I understand these two numbers, wouldn't my monthly mortgage come into play here? If I'm going to be taxed on the full amount of rent recieved, not Rent-Mortgage-Property Management, it's going to be darn hard to make any money in this business!

Second, my rental property is a condo, and it seems to be well published that I can deduct the condo fees as expenses, does this change since the condo fee provides some utilities? Would I be able to deduct a % vs the whole amount?

Third, the listing fee is not listed on the income/expense report. I emailed my property manager, and he told me that the listing fee is not listed, and neither is one month of income, to offset this fee.

Any help would be great! Overall 2013 went fine for my first year as a real estate investor, and I'm looking forward to purchasing more properties! Provided this tax situation doesn't eat up all my profits!

Thanks Again!
Joe

[Dave Toelkes]

Go to the IRS website and download a copy of Schedule E. This is the form you use to report your rental income and claim your expenses to include depreciation. You will see that almost every penny you spent on your rental property during your period of ownership is deductible (the principal part of your mortgage payment is not). As a bonus, depreciation did not take any money out of your pocket, yet you still get to take a depreciation deduction.

It is not hard at all to have a positive cash flow but show a tax loss on paper. While you are on the IRS website, download the IRS Pub on Rental Property tax reporting. The IRS website is an important resource for your questions.