2017 Tax Implication

[Jordan Shutts]

I'm looking at purchasing a home in my college town. I'm a 21-year old college student from NY. I will live in one of the 5 bedrooms and rent out the other 4 to friends. I have been pre-approved with a local bank to purchase the home with a business partner 50/50. He will not live at the home. I'll be getting a residential loan and I'm not sure if I can transfer into a LLC without them calling it. For the time being, he'll just have his name on the loan and we can write up a partnership agreement.

Please correct me if I’m wrong about the following:

For tax purposes, I’m assuming that I’ll be able to write off 1/5th of the mortgage interest and r/e taxes on my schedule A. For the schedule E, I’m assuming that I’ll be splitting the 4/5th remaining mortgage interest and r/e taxes with my partner 50/50. After that we’ll split the 4/5th of expenses such as insurance, depreciation, garbage pickup and repairs. Once I move out of the home in May 2018, the rent income and expenses will be split 50/50 from then on out.

Will we be subject to self employment income? Does me living there affect our ability to deduct legitimate rental expenses? 

[Steven Hamilton II]

You will not be subject to SE tax on the income. You will be able to write that portion off; however, it would have to exceed your standard deduction. You may not make it there depending upon your purchase price etc.

All of the expenses are listed out on the partnership return and then the profit/loss is allocated based upon ownership percentage or any other agreement.

You definitely need someone qualified, does not have to be a CPA, could be an Enrolled Agent or an attorney. Just make sure they specialize in tax and have significant experience dealing with real estate investors.

Here is a great list of questions to ask a potential accountant: http://www.biggerpockets.com/forums/51/topics/7044...

Also check out the www.NAEA.org page in your search. It should help you find someone local. If someone comes to me, I'll send them your way.

If you need help in your search or want to verify something don't hesitate to ask.

For example: I have clients worldwide and things are just as easy as I e-mail them, talking on the phone. I even use Skype and TeamViewer to communicate with clients so I'd highly recommend looking for one of the best with great references that interviews well with you.

So look for someone you can connect with that works out for your situation.

Feel free to ask here if you have questions