by swebb follow (0)
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Rob and Chris, thanks for those replies. I’m hoping to some day rent out my condo and have that money contribute toward the mortgage I’ll have on my next home.
How would the government find out that you’re even receiving rent? Couldn’t you arrange for them to live there for “freeâ€, but on the condition that they pay $X toward the mortgage you have on your home? Is that “incomeâ€? When a parent pays rent for their college-age child, that money certainly isn’t the child’s “income†tax-wise. So could you escape taxes by having your tenants pay a debt for you instead of receiving cash from them?
Michinaga: I'm sure there are lots of people renting out rooms and houses and don't report the rent, but I pay my fair share and my CPA does everything on the up and up and takes every tax advantage I'm able to take. I use a large management company to manage my properties so I get a regular statement every month and they send out 1099's to contractors that do $600.00 or more worth of work in a 12 moth period, (gardener, etc.) I would guess that some of the scoflaws would be caught in an audit when a tenant gets pissed off at the landlord and lets the tax folks know, or if a tenant takes a "renters credit" on their particular states tax form, or that when one of the maintenance people pays his/her taxes and that raises a flag because the other end isn't accounted for.........who knows, I don't worry about what other people are doing. I enjoy life and don't worry about the IRS because I have nothing in life to worry about. Good luck with your rental in the future and I'm sure it will pay off for you in the long run.
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I thought the forum readers might enjoy the email I received in my inbox this morning:
"You've heard again and again how buying a home is the best tax break around. Maybe at one time you were called a chump for renting. After all, paying $1,200 a month for your mortgage is really the equivalent of paying $900 a month in rent. But how does that work exactly?
Here's the deal: Mortgage interest (including points) and real estate taxes are tax deductible. That doesn't sound very sexy, but it adds up. Since most of what you pay for your mortgage in the first years is interest, on a $1,200 mortgage payment you get to deduct about $1,080 a month. That reduces your taxable income by about $13,000 a year. If you're in the 25% tax bracket, that deduction is worth $270 a month."
My response:
'The tax deduction is is one of the least understood aspects of owning a home, and your example illustrates that. The typical buyer with a $1200 payment will be married (filing jointly) and will not have many deductible expenses other than mortgage interest. The $13,000 reduction in taxable income sounds great until you consider that without a mortgage they would be able to claim the standard deduction ($11,600 for tax year 2011). The difference of $1400 leaves the buyer with a net $350 for the year. The mortgage interest tax deduction makes more sense if the owner has other deductible expenses (most median house buyers do not), as the annual interest payments significantly exceed the standard deduction, and when the buyer is in a higher tax bracket. So in some cases it is a very powerful force, but in this example it is negligible."
Of my question is whether or not this Realtor already knows this and is just being disingenuous, or if they are just repeating what they hear without understanding it. (willful misrepresentation, or ignorance..?)
-S
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