All Forum Posts by: Dave Toelkes

If you are using STESSA, then you are already traacking your rental income and expenses.  If you have not done so yet, I suggest you have separate checking accounts for your rentals and for your personal stuff.  Deposit your rental income into your rental checking account and pay your rental expenses from the rental checking account.  Pay your personal expenses from your personal checking account.  Money withdrawn from your rental account and deposited to your personal account is a withdrawal of capital and does not get entered into STESSA.  It is not absolutely essential that you have separate banking acounts for your personal and rental activities, but it does help simplify your bookkeeping.

At the end of the year, STESSA should be able to give you an itemized report of your income and expenses for each property.  Suggest you set up your income and expense categories (if STESSA does not already have it done for you) to parallel the rental inccome and expense categories on Schedule E (1040) to facilitate tax preparation.  

The recorded deed for the purchase of the property should state the purchase price.

When using your tax returns to calculate your net rental income contribution to the DTI calculation, start with your net taxable rental income, add depreciation, and subtract the portion of your mortgage payment that goes to loan principal reduction.

If the final answer is a positive number, that amount is included in your income for DTI purposes. If the final answer is a negative number, that amount is included in your liabilities for DTI purposes. If the lender has asked for two years of tax returns, they may use the average net rental income (loss) from the tax returns.

Assuming you file jointly with tyour spouse and also assuming that your joint earned income plus the capital gains will be less than $78K, you will not have any capital gains tax on your investment property sale profit.  Any depreciation you took or should have taken (whichever is greater) will be added to your earned income and taxed as ordinary income earned in the 15% tax bracket.

How long since you purcashed this property? If you purchased less than six months ago, you don't meet the qualifying requrments for a cash-out refinance. If your DTI (debt-to-income) ratio is more than 45%, then you must have at least six months cash reserves on hand to qualify for a cash-out refinance.

If you purchased more than a year ago, the bank will want a new appraisal to establish the property value.  For investment property, the bank will only lend a maximum of 75% of the property value to pay off your existing loan, cover the settlement costs, and then give whatever is left over as your cash-out.  In your case, let's say that the closing costs will come to 3K and you want an additional 40K cash-out.  To support this loan, the property appraisal must come in at 204K minimum.  

Additionally, the refinance must give you at least a 5% benefit.  This usually comes in the form of lower interest rate or a lower payment when going to a longer term.  In your case you are going to a longer term AND a higher interest rate resulting in an even higher payment that you have now.  This is too painful to even consider

Furthermore, only 75% of your monthly rental income can be used to cover your monthly loan payment and other recurring costs (such as HOA fees). Using 75% of your monthly rental income gives you $1313 to cover your loan payment without increasing your DTI. I am guessing that this amount is even lower if your lender is using the Schedule E expenses from your tax return instead of the 75% number. The difference between $1313 and your new monthly payment becomes an additional liability included in your DTI. If this pushes your DTI too high (beyond their maximum qualifying threshold), then this is just one more disqualifying factor for the loan you are seeking.

Quicken has an "attach featue" that will allow you to save an image of a receipt, check, satatement, or any word or PDF document in your transaction register.  This feature lets you link the register transaction to its supporting ducomdntation.  In your Quicken transaction register, click on any transaction to highlight the entry.  Look for the paper clip icon below the date.  Click the paper clip and attach your receipt. 

It is my understnading that any legal action brought about asa result of your rental property ownership and operation will be adjudicated in NC. The state law governing the "foreigh" LLC won't apply in a NC legal action. Of course, confirm all this with your attorney.

An LLC is a business entity. If you just use the LLC as a title holding vehicle, what is the business purpose of the LLC? I don't see any benefit to be gained by putting your primary residence in an LLC. On significant disadvange that would concern me is loss of the homestead exclusion in the event of bankruptcy,. In many states, your primary residence is escluded my mandatory liquidation requirements in a bankruptcy proceeding. I fear you may lose that protection if the LLC is the owner of your primary residence. Be sure to consult a local resal estate attorney in your area before taking any action.

My suggestion for a mixed use property is to treat it as two separate properties -- one in your rental activity and one in your commercial activity.  Bookkeeping is not a problem this way.  

I sounds as if you are defining each property as an enterprise, and maybe you have a separate business entity for each property as well.  I prefer to think of an enterprise as a property class.  In other words, all my residential rental properties (in the aggregate) are one residential rental activity, or one enterprise.  I have one checking account and one set of books for this enterprise, with sub-accounts for each property.  

@Ann B..

If you inherited the properties, should we assume the properties went through probate?  If so, then the probate court has already determined the property values.  What do the court documents show?  If the court documents show that value was established by the tax assossor's office, you may want to still get a professional appraisal.  Be sure to ask for a retrospective appraisal to your dad's date of death.