All Forum Posts by: Dave Holland

Matt F. You would start the depreciation from the time you put it in service as a rental. To get your basis, you should use the lesser of FMV or the adjusted basis. Assuming your property appreciated during your ownership your basis would be cost + capital improvements made (for the property house). Assuming you bought the appliances when you first started living there you can break those out at current FMV since appliances don't appreciate in value. Also you'll get more depreciation expense depreciating the appliances over their shorter useful life than including them with the house at 27.5 years.

William Brennan your analysis is spot on. You could very well be cash flow positive on the property and have what we call a "paper loss" which means you show a loss or significantly less gain due to depreciation expense. Depreciation may be the biggest tax advantage to owning real estate. Let me know if you have other questions.

Eric Armstrong assuming you have both flowing through to your personal return, they are both going to taxed the same, since they will be added to your ordinary income (taxed at your federal income tax rate). So you would pay the same amount of tax on 1,000 of interest income and 1,000 of rental income. Rental income however is a lot more flexible on how you get to that income number and that is where much of the tax advantage comes from.

Patrick Britton for me it comes down to time. As long as you have the skills and tools to do a good job I think you can DIY anything. An example at my personal home, I recently tiled our bathroom floor over a weekend but we are currently getting bids to paint our house exterior. I don't have time to paint our house even though that probably is "less skilled" labor, it will take much more time. I think the same rules would apply to any investment property.

Matt F. For me the best tax advantage has always been depreciation. It's a big expense that costs you nothing out of pocket, hence the "paper loss". Also being able to deduct mileage, home office expenses, things that you may pay for anyways (like a BP pro membership?). It's hard to give a full overview of the advantages as there will be certain strategies that work for you and some that don't. I would check out the Amanda Han's book or listen to her podcast and see what else you pick up that would apply to you. Also if you have any other specific questions feel free to send me a message.

Ryan Moore depending on your private lender, you might be getting a statement from them at the end of the year that tells you the interest paid. Or you might have an amortization schedule that can break your payment out, which portion is principal vs interest for the life of the loan. Regardless wether they supply you with the interest you paid or not you should calculate it and deduct it. If you need any help calculating it or have other questions just let me know.

Ryan Yes Rich is right the interest is deductible for you regardless of how the private money lender is getting their funds. Your private money source will have interest income from you and interest expense to the bank. Its really not double dipping because it's a different source on the money, HELOC to PM and PM to you.

Dee Yes just to expand on the other responses we are all assuming that by "cashing out" on the properties that you own you mean you will be doing some sort of cash-out refi and not actually selling the properties. If you were selling the properties there would be tax implications but in obtaining financing secured by your properties there are none. I think that's what you are wanting to do anyways but just wanted to clarify. Dave