All Forum Posts by: Matthew Walker

Tom, thank you. That is exactly what I was looking for!! The fact that I am also living in the property while renting it out complicates things, so I'll need to ask a CPA. However, I should be able to deduct everything (some as repairs, made after tenant moves into one room, and some as capital expenses deducted over time, made before advertised as available for rent).

Response question about depreciation recapture. 

I buy a house for 500K and rent it out. I depreciate the house to zero over 27.5 years. I sell the house for 1million. Does this mean I pay tax on 500K sale profit at a 15% rate and tax on the 500K depreciation recapture at a 25% rate?

I am living in my fixer upper now and for the next 6 months. While living here I am making a handful of major improvements on the house which will help increase rental value (capital expenses, like new appliances and flooring) as well as small repairs that were already needed when moving in. 

The home will not be rented fully until 2022. How can I use these repairs and capital expenses as deductions? Is it possible to also write off the other common deductions (PMI, interest, depreciation) while living here? Will it help if I have a roommate sign a lease ASAP?

Thanks Nathan! That is really helpful.

If I use the method for depreciation found in that article you linked (also pasted below), my deduction for that will be larger than the principle payments for the first 21 years of the mortgage! Saved the day. Phew!

https://www.homerentalsla.com/...

https://www.ramseysolutions.co...

As far as setting aside money for repairs (both maintenance and capital expenses) and vacancies, it is something I plan to do before renting. The numbers above are not my real numbers. For now, I bought the property without doing a detailed analysis because I needed to stop throwing money away on rent ASAP!

I bought a single family house with 5% down and am fixing it up while living in it with a friend. After renovating, I'd like to rent out the entire house. I can definitely manage to rent it for slightly more than all of my standard monthly costs (mortgage, PMI, home insurance, property taxes) but I did not think about taxes before buying.

Incase anyone is kind enough to break down the math behind taxes...For easy math lets say property value is 100K and my cost is $1000/month. Principle is $300, interest $500, $100 PMI, $75 home insurance and $25 property tax. If I understand correctly, I cannot deduct costs of principle or home insurance. I know repairs and improvements are a deduction, but not what I'm focused on here.

Let's also say rent is $1100/month. Does that mean I pay tax on $1100 - ($500+100+25) = 475? At 30% tax rate, (living in California) that means I'm paying about $140 in taxes monthly. This would easily turn this property into a cash flow negative in the current market. How much will depreciation help? Any other major deductions I am missing? Is there a way I can deduct principal payments if I start an LLC? Did I miss any tax benefits by buying the home as a person and not as an LLC?

I realize taxes are paid yearly, and any other costs on the property (repairs, improvements, property manager, travel costs, etc.) will reduce the income I am paying taxes on, but for now I am just trying to get a general estimate of the monthly breakdown.

Please point me to some resources that can help me understand how to best understand and handle taxes!