All Forum Posts by: Nick Eckemoff

The way I read is if you file a mortgage interest deduction claim for a rental house will have to follow AMT.

• Interest paid on a home mortgage not used to buy, build, or substantially improve your home.

I found a good link that explains AMT and how to calculate how much you'd owe.

https://www.fool.com/taxes/2017/04/15/your-2017-gu...

Also here is a link to calculate Fed income tax.

https://www.calcxml.com/calculators/federal-income...

In summary, if I am doing the calculations correctly, if you make more than $160k (married filing jointly) and claim a single mortgage interest tax deduction, you'd have to pay AMT, which will be far greater than doing a standard deduction. A $160k income would disallow an $84k exemption due to the AMT rules. You could end up paying $30k more via AMT because your effective tax rate will go from 12% to 26% (10% more) because AMT only has 2 tax brackets. However if you make less than $160k or near this amount, you can claim up to $40k of itemized deductions before being subject to paying AMT.

Doing my calculations, the mortgage interest deduction pushes the total deductions higher than the gross rent. This is assuming no rehab or repairs too. Another words, you wouldn't pay any federal taxes on rental property profits.

A single 120k rental house would mean you'd want to item deductions. If there are additional deductions like an expensive rehab or repair, this could even help me reduce the amount I pay in taxes on the income from my day job. If I had enough investments, I guess this will reduce tax down to zero...but there is an Alternate Minimum Tax (AMT).

If you do claim the mortgage interest deduction, you HAVE to complete the AMT form then pay whatever taxes are higher (regular or AMT). I don't know much about Alternate Minimum Tax, but reading online, it doesn't allow deductions and is about 25%. 

Is it possible that claiming mortgage interest deduction and you could end up paying more in taxes via AMT?

Thanks for the response. Is the way I calculated the deduction in my example accurate?

Sorry if this has been asked before...maybe I'm not using the correct keywords.

I am confused about the mortgage interest tax deduction. I understand that it allows the interest on a mortgage loan to be deducted, but how much considering a mortgage is amortized? The first 5 years or so mortgage payments go mostly to the interest cost. This means that, for at least the first year, 100% of your mortgage payment is interest-only and you can deduct (nearly) the full amount?

For example, on a $120k single family home on a 30 year 4% mortgage, the payment is about $575 per month. This is technically mostly paying the interest for the first years. The sum of the payments is $6900 per year so this would be filed as a deduction? 

I understand that if you file jointly when married the standard deduction is $12,600 in 2017 and might even be doubled pending policy changes. Even still, if you itemize deductions instead of taking the standard deduction, you can exceed this mount pretty quickly considering all the other deductible expenses for a rental property investment. The mortgage deduction alone with two $120k properties would exceed the standard deduction. After a number of years, you can even refinance to reset the amortization and reduce the monthly payment to boost cash flow and continue to maximize on this deduction.

If someone buys a 300k+ house for personal use, the mortgage interest deduction will exceed the standard deduction for the first years.

Am I understanding the mortgage interest deduction correctly?

Hi,

From about 18 to 25 years old, I used my spare time to completely renovated an old loghouse and today I live in it (no mortgage or rent). My career focus has always been IT and I have made a decent living to be considered 'upper middle class' today. I turned 30 when 2017 started and this made me realize that I really need to start investing in order to advance because a better job wont pay significantly more and I am perfectly happy doing what I do now. Instead of working for money, I want money to work for me.

I have done pretty well with stocks. I tried buying 'larger safer stocks' then waiting till they go up or down 2-5% selling. I tried 'high risk penny stocks' and didn't want to go down that path (its nerve wrecking to see your savings bounce up and down 10-20%!). I tried to get involved and understand the stock market in efforts to control my investments, but came to the realization that its simply not predictable and I can't get interested. It feels like gambling...I want to invest in something I understand and have at least some control over. Real estate has always been in the back of my mind and now I have saved enough to buy a house.

After about 6 months of research (lots of excellent discussion on the forums here!), I am looking for my first investment property to use as a rental. I want to focus on purchasing 100-150k single family homes in class C+ zones that rent 1% of the value (located near good job opportunity) AND that I can purchase at a discount (50-70%) because they are distressed. I would rehab them myself to add value and save cost. Possibly could sell the home as a flip instead of renting as well. I would be able to do the work myself because my full-time job is only 3 days per week.