Tax breaks for a rental breaking even

[Angelo Llamas]

I’m a little confused on what happens when your rental breaks even and you do tax breaks or write offs for maintenance , travel, etc. Does nothing happen or you don’t get anything since the property is not generating income or do you not do it at all to begin with? Might be a silly question just new to it all. thanks a lot! 

[Linda Weygant]

As mentioned elsewhere, breakeven on cash flow is not the same as break even for taxes.

Let's make some assumptions:

Rental income = $1000

Mortgage payment = $400 - but $300 is interest and $100 is principal

Other expenses (repairs, advertising, utilities, etc) = $600

Depreciation = $250

The above scenario creates a break even from a cash flow perspective, however the tax scenario looks like this:

Rental income minus the mortgage interest (principal is not deductible) minus the other expenses minus depreciation looks like this:

1000-300-600-250 = $150 Loss

If your income is over $150,000, then you cannot deduct that loss, but you can roll it over to future years.  Essentially you are creating future tax free income by being able to roll over these losses.

If your income is between $100,000 and $150,000, a portion of that $150 loss is deductible and the rest rolls forward.

If your income is less than $100,000, your loss is fully deductible - and THAT's the cool thing about rental income.  You're breaking even on cash flow, but you got to deduct $150 against your other income.

Hope that helps explain it.