Out of State Passive Investment Taxes

[Ken Singh]

I am in CA and thinking of buying 2/3 apartments in MI state managed by apartment complex management.

What can I deduct from my expenses?

1. Property Taxes (Y/N)

2. Property Insurance (Y/N)

3. Management Costs (Y/N)

4. Maintenance Costs (Y/N)

5. Depreciation (Y/N)

6. Vacancy losses (Y/N)

7. Adding new items, say Refrigerator, etc. (Y/N)

8. Improvements, say new tiles in bathroom etc. (Y/N)

It is definitely going to be a PASSIVE investment, unless there is a way to make it passive. I have full time job too.

Thanks a bunch!

[Dave Toelkes]

1, 2, 3, 4 and 5 are deductible against rental income

#6.  Vacancy loss is not a deduction.  It is an allowance most investors use in their cash flow analysis when considering a prospective purchase.  There is no deduction for rent you did not receive.  Instead, you just pay tax on the actual net rental income.

#7.  The cost of improvements is a normally capital expense that increases your tax basis.  The increase in tax basis does increase your depreciation deduction, but the cost of improvements is not typically deducted.  There are exceptions for low cost replacement items, but the general rule is capitalize then depreciate.