Joe Biden Tax Credit Strategy

[Jordan Roberts]

Ok, so this may be a long lead up, but I'm explaining the whole strategy here. I posted yesterday another topic asking about how cool banks are with letting your primary house sit vacant for 1 year, then using it as a rental after 1 year. The general consensus was that as long as I actually leave it empty they shouldn't care too much. *WARNING* I'm not trying to commit fraud by sneaking a tenant in, that's not what this post is about. So save your anger. I'm encouraged financially by Joe Biden's tax credit to leave the house empty for 1 year. I'll show you why below..... and how we all can potentially make money off of it and get a better interest rate on the mortgage as well!

The GOAL of this thread is for you to poke holes in my strategy and tell me WHY this couldn't work. I'm already aware of one potential problem brought up in the other thread and that is....

- Vacancy Insurance - I am unsure of what the actual premiums would be for this, so I will have to call and get a quote since I was told this is usually higher premiums than rental insurance.

**Strategy**- I found a quick house on Zillow in the area I invest just to use it as a real life example. My numbers used are going to be from real experience as an investor in the same area so I'm familiar with quotes and taxes because that's what my other houses are getting. I'm also not saying this house is particularly a good deal. It's just one that cash flows after it gets rented.

House - 3B/2B 1,500 Sqft.

Purchase - $124,000 (negotiable obviously)

20% Down payment @ $24,900

(Future) Rent - $1,050

Monthly Mortgage payment ~ $522

Taxes (0.4% rate since it's a primary residence), Insurance premium roughly $550/yr (overestimated here)

Joe Biden as my tenant will be giving me a $15k tax CREDIT the following year. So that means he will be paying me roughly $1,250 in rent to leave my property EMPTY, afterward I am free to use it as an actual rental. We can assume a 0% repair and vacancy rate. I would pay my property manager in the area though just to stop by a couple times per month to make sure there's no squatters. I would pay her roughly $50/mo, which is a good deal since she's not managing any tenants or dealing with anybody. Just opening the door, looking around and leaving.

So, my NOI would be $1,200/mo. $1,200 - $522 = $678/mo cash flow for the first year.

Now, there are 2 ways to look at this. Either in cash flow for the first year OR reduced cost basis in the property permanently. Which is how I would analyze it. So I would take my year's cash-flow which would be ($8,136) and put it back into my pocket. So by the time the house gets used as a proper rental, I actually have $8,136 more than I put into the property. So going forward my actual cost basis would be $24,900 - $8,136 = $16,764 + closing costs/rehab which is how I would analyze this property going forward permanently.

Now let me know how this wouldn't work.

[Jordan Roberts]

Originally posted by @Bill B.:

That was my question. Let’s assume most first time home buyers make $100k or less give or take. So maybe they have a $10k or less tax liability. Do they get $5k in cash or do they just owe zero? I had to increase my tax liability to benefit from the electric car credit a few years ago. so I converted some Ira funds to Roth funds to create a tax liability. I was told that if didn’t have a large enough tax liability the extra was just lost. 

Maybe we can get a cpa or tax expert to chime in. But until it’s in writing they might just be using past experience to predict future consequences. 

Ahh ya I see what you're saying. It would all just be guessing at this point in time. But I could also see it being like the child tax credit where they just put money in your pocket. But, typically people use that credit to off-set any liabilities they have, even though they don't have to. 

This strategy I outlined wouldn't be worth it if it was just a $15k tax deduction obviously. So I will really have to nail down my strategy revolving around an actual credit. I'm curious what little nuances would be attached to this bill once it comes up.