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can you claim tax benefit over and over? |
Ted
62 Posts
Member Since: 01/02/2003
Chicago, IL
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Posted: 17:16 on 05-22-2003
Hello all-
I'm new to the REI world and have just purchased my first rental property. I am fairly familiar with the tax benefits, and am guesstimating that I'll get a 8k tax benefit each year. My question is this--as I purchase more and more property, can I keep claiming similar deductions and multiply my tax refund (i.e. if I have 2 properties will I get 16k back?)
I will put more than 750 hours/year into the RE biz, so I shouldn't face the passive loss rule.
Thanks for your help!
Ted
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rajwarrior
1657 Posts
Member Since: 03/05/2003
Claremont, NC
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Posted: 18:19 on 05-22-2003
Ted,
Not sure if you should "guessimate" your annual tax benefits. Standard passive/noncash rental tax write-offs are mortgage interest and depreciation, both of which are based on each individual property. You also have actual cash write-offs like repair costs, utility bills, mortgage points, eviction process, etc.
Then there is the wear and tear on your vehicle, usually taken as a per mile deduction. Best bet is to get a good CPA, one who already works for landlords, and preferably is one too. You can be an expert at obtaining properties, let the CPA do the taxes.
You might want to check into a property management company as well. They already know more than you will probably ever learn about the legal aspect of landlording, and will, in the long run, save you money. Most only charge 10% or less of the fair market rent.
Roger
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DaveT
2280 Posts
Member Since: 04/07/2002
Pawleys Island, SC
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Posted: 19:56 on 05-22-2003
Quote:
| My question is this--as I purchase more and more property, can I keep claiming similar deductions and multiply my tax refund (i.e. if I have 2 properties will I get 16k back?) |
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Ted,
How much income tax will you have to pay from other sources, and how large are your income tax withholdings? Your refund can never exceed the amount of your actual income tax withholdings.
If you have no other source of income except this rental real estate activity, the IRS will not give you money to cover your passive losses, no matter how large they may be. Instead, you carry passive losses forward to the next tax year to offset future passive income.
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Ted
62 Posts
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Posted: 21:01 on 05-22-2003
Thanks to you both for the replies!
Dave,
In addition to this property, I pay roughly 20-25k per year in W-2 income tax. Am I correct in saying that if I buy more buildings, I can apply the losses from those buildings against my W-2 income tax as long as I materially participate in the property business?
Ted
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DaveT
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Posted: 20:54 on 05-23-2003
I guess you are trying to become a "real estate professional" so that all your passive losses from your rental property becomes "active" income.
You apparently have a full time job, and since your W-2 income tax withholdings exceed $20K per year, I assume that you fall into the income group where passive losses are phased out (between 100K and 150K), or you can not claim passive losses at all if your income exceeds 150K.
Unfortunately for you, the IRS has defined a rental activity as a passive activity regardless of the level of the taxpayer's participation.
There is ONE exception, however. A taxpayer's rental real estate activities in which he materially participates are excluded from the passive loss limitation rules IF the taxpayer satisfies a two-step eligibility requirement:
1. More than 50% of the individual's personal services during the tax year must be performed in real property trades or businesses in which the individual materially participates, AND,
2. The individual must perform more than 750 hours of service in those same trades or businesses.
Assuming that your full time job requires about 2040 hours (40-hour workweek), you would need to perform at least 2041 hours of service in your real estate related trade or business just to satisfy the 50% rule above.
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