All Forum Posts by: Todd Rasmussen

@Chase Cline

Speaking in huge generalities about passive investors that are non real estate professionals (ie have a normal source of income from a w2 or non real estate self employment) and without being a tax professional:

Yes. I wouldn't exactly word it like that, but you get to legally deduct so many expenses related to real estate investing that huge portions of your gross income should be offset by deductions. Limited experience, but have found Sch E line 26 (total rental real estate income) showed less than 20% of gross rents received on our least expensed (that's a word now) property in the past two years.

Speaking to your specific example, if you have 1k of "profit" a month and depreciation wipes it out, then you did not make any taxable income from your rental real estate activities and actually made "0" profit a month according for the IRS. The 12k in your bank account is just not taxed yet. When you go to sell the property, you will pay tax on the "profit" the IRS "didn't tax" through depreciation recapture. Uncle Sam finds a way to always get his.

@Chase Cline

Good luck! The only other thing I can think of is maybe it's being claimed as business income and flowing through schedule C which might explain additional taxes?

@Chase Cline

Hi Chase,

The income from your rentals doesn't seem like it's being reported in the correct place, or you are not claiming nearly enough expenses. If you look up IRS form schedule E, you'll see that advertising, auto and travel, cleaning and maintenance, commissions, insurance, legal and other professional fees, management fees, mortgage interest, other interest, repairs, supplies, taxes, utilities, depreciation all get deducted from your rental income before it flows through to your taxable income.

Hi Shaun,

Haven't applied for a loan without pay stubs, so can't help you there. If you can, you might look at a heloc to leave your current principal and interest alone and give you some flexibility as well just in case something unexpected comes up. Don't know if it's available on account of your self employed situation, but our lender gave us options up to 100% LTV when we were getting ours and it's been nice to have a buffer. If you are going hard money anyway might want to see if the seller can carry a portion through the renovation and refi step as well.

From the outside this looks like a big first step. If you are going to go all in on the first hand, just make sure you aren't chasing a flush. Good luck!

Yes. I understand her side of it too, but you need to have someone who makes time to do what you need them to. If making a low offer isn't worth their time, find someone who will.

I'd charge them your actual damages for vacant days. Have them keep it clean and neat so you can show it while they are still there (hopefully it shows well still and doesn't need carpet/paint/etc) In exchange for them letting you show the property with them still there, you could find a new tenant with a compatible move in date, and the current tenants would only need to compensate you for a couple days (assuming carpet shampoo or other cleaning). I'd try to make this a win win. You'll minimize vacancy, chances of legal cost, and resentful/spiteful tenants.

Hi Philip,

I haven't read that guide and am not a tax professional but I do file taxes as often as once per year. Try IRS Publication 527 for your primary question. I think you'll find that you are a passive investor and will need to file schedule E with your return.

Your side note is a little more confusing. Since depreciation is used to recover the cost of income producing property, your ability to deduct it requires that it cost you something. I assume that you purchased the appliances in the property transaction and indicated their value at zero at the time. If so, their value is zero and cannot be depreciated or their value is already buried in the cost basis of the home and will be deducted over the next couple decades that way. Either way, probably best to let that one go this year. Even if you did reduce your cost basis in your property to give the appliances some value to depreciate faster, the capital gains you would pay against that difference on the back end is probably higher than your effective tax rate.

I think new paint and carpets will solve the smoke problem and after six years I think you are going to have a hard time arguing that you wouldn't need to do that anyway for normal wear and tear. My opinion is that the damage is done and keep renewing lease to delay how long you have to put money into the property and avoid a vacancy.

Todd

Hi Rich,

Congratulations on the contract. Even if you pull HELOC out as cash, your lender will ask where it came from and ask for documentation. You might be able to do 20% down with actual cash if you can roll costs into your loan and find a couple more thousand cash. Also find out about borrowing out of your 401k and pooling all your resources to buy the property "cash" and then do a cash out refi with delayed financing exception to avoid waiting periods (if it is possible) Does anyone know if that exception applies on commercial loans? I've only used it on <4 unit MF....

Todd