All Forum Posts by: Clark Peterson

Hi @Christopher Duron, if the property is an investment property the interest expense is deductible on Schedule E. The article may have been referring the the deductibility of interest on home equity lines of credit on primary or second homes (non-investment properties), which is deductible if the proceeds are used to make improvements to the property. Hope that helps! 

You've correctly identified the primary tax deductions for owning a rental property. The net rental income (or net operating income NOI) would be taxed at your applicable effective tax rate for ordinary income. The only thing I would add is that when you take depreciation into account, which is a non-cash deduction, your net income subject to taxation can be quite a bit lower than in your hypothetical example.

Hi @Matt Leber, they probably wouldn’t be deductible directly on your income taxes per se, but they might be added to your cost basis and deducted through depreciation. Definitely going to want to talk to a CPA or tax attorney about that one. 

Hi @Paul Kubin, I wouldn’t take this as gospel truth but I think it’s unlikely. From my side, I’ve investigated whether being a mortgage broker counts towards designation as a real estate professional, and it doesn’t. It’s considered a “tangentially related business”. It stands to reason that the same rationale would likely apply to a notary professional.

Reference:
IRC Sec. 469(c)(7)(C). Per Chief Counsel Advice 201504010, the term “real property trade or business” includes real estate brokers, but not mortgage brokers or other tangentially related businesses.

A consultation with a CPA or real estate / tax attorney might be in order if you still want to pursue this question further. Good luck. 

Hi @Jason K. it's impossible to say what the "right" thing to do is without knowing much more about your overall financial picture. My understanding from your post is that your inheritance is in cash. Two general things I can say are: (1) Ensuring you have a balanced portfolio between financial assets (stocks and bonds) and real assets (homes, property, etc). For example I would ensure that you're maxing out your tax advantaged retirement accounts (Roth IRA, Traditional IRA) with a broad and balanced exposure to financial assets like a target date fund. (2) Don't think about taxes as a "risk". They are a cost of doing business when you've reaped a reward. Obviously that said it makes sense to work with a financial and tax advisor to ensure your assets are being managed in a tax efficient way. Good luck!

Hi @Michael Montagna. One thing I’m not following here is why the seller would be selling the home for less than the value of the property. Can you help explain the scenario further? 

A construction loan is probably the way to go. Feel free to DM me if you'd like to go into detail. 

There are generally four types of construction loans: 

- Construction-to-perm: this loan finances construction of a home and then converts into a fixed rate mortgage once the home is completed.

- Construction-only: a short-term, adjustable-rate loan that is used to complete the construction and afterwards the loan must be paid in full or refinanced into a mortgage.

- Owner-Builder Loan: Draws are made to the owner-builder, rather than to an approved third-party contractor. These loans are usually only available to owners who can demonstrate experience as a homebuilder and/or have a contractor’s license.

- Renovation Loan: it's like traditional mortgage. Renovation loans cover the cost of purchasing a home and performing major renovations. Because of this, the loan amount is based on the anticipated value of the home after renovations.

Would need a lot more information including, most importantly, what your goals are, @Matthew Mulheron. If you're going to turn around and buy something else, you might not be able to find something comparable in price and/or affordability with interest rates that are perhaps higher than what you have now. But again, the right course of action might depend most on what your goals are. 

 Yeah, @Nicole Heasley Beitenman, I was under the same impression - that it was the Fannie/Freddie upfront fee for DTI >40%. Here is an Inman article I saw today on it.