Rental real estate tax benefits

[Patrick Flanagan]

I’m a little cloudy on the specific tax Benifits you get from owning rental real estate.

So please correct me if I’m wrong....

I bought a 4 plex this year with a VA loan, it's considered my primary residence. I don't make money in it each month due to living there. I will once I move out.

I bought it for 750k, so would I divide that by 27.5 years?? That would be $27,272. So do I get to deduct 27k off my taxable income??

[Michael Plaks]

@Patrick Flanagan

It is unclear from your description whether or not you have tenants in the other 3 units. If you do not currently have tenants in the other 3 units, then what is the reason? It is also unclear what you mean by "not making money."

Once you move out, this is a 4-unit rental property. You would add up the rents from all four units, subtract all eligible expenses, subtract depreciation, and look at the result. If the result is a positive number, your taxable income and your taxes go up. If the result is a negative number, your taxable income and your taxes might go down, and they might not. It depends on your overall tax situation for the year, for instance on your occupation listed as "contractor" which can mean a lot of different things.

Of course you're "a little cloudy" because this whole thing is far more complicated than my one paragraph above. For instance:

• you need to know which expense you can deduct. Some of the advice you received on this thread is wrong: you cannot deduct PITI, only ITI. Some repairs can be deducted, and others cannot. It's not simple.
• you need to know how to calculate depreciation. There're some good tips on this thread, but it's not enough to do it correctly on your own.
• you do not deduct depreciation against your income, it goes into that whole calculation I mentioned: rent minus expenses minus depreciation
• the resulting number known as "net rental income or loss" can be improved with certain tax strategies. Sometimes it makes sense to do it, and sometimes it does not. It again depends on your overall financial situation.

For this year, we would need to figure out how the units are used. If you live in one and rent the other 3, then you have two properties for tax purposes: a personal residence and a 3-unit rental property. You need to allocate expenses between them. The rental portion will be treated the same as if your entire property was a rental, except only part of your expenses will count.

And if this was not enough complexity, the fact that you live in this property adds extra rules to deducting some of the shared expenses. Do you still want to DIY it?