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Could You Be the Next Real Estate Tycoon?

Posted by McDonald & Osborne Posted on Oct 09 2015

Have you ever thought about investing in rental property? While the thoughts of becoming a landlord may sound intimidating, tax benefits await for those who are well versed in the related tax laws. One of the keys to gaining from these benefits is to keep organized records. An inexpensive software program or simple spreadsheet will help you keep track of related expenses such as:

  • Real estate taxes
  • Mortgage interest
  • Commissions and property management fees
  • HOA dues
  • Insurance
  • Repairs and maintenance costs.

Also be sure to keep records of your closing statement at purchase which will include the purchase price of the home and all settlement costs. These costs in addition to improvements made to the house (less accumulated depreciation) will determine your “basis” in the home, which will be needed to calculate any gain or loss you incur from the sale of the property down the road.

Rental property is considered “passive income” unless you are considered a real estate professional by the IRS. Generally, losses generated by passive activities, such as from rental properties, can only be taken against passive income and may not be used to offset “ordinary income”, such as wages and portfolio income. However, up to a $25,000 loss from rental real estate may be taken against nonpassive income if the taxpayer (or spouse) “actively participates” in the activity and their Modified adjusted gross income (MAGI) is $100,000 or less. The allowance is phased out between MAGI of $100,000 and $150,000. Generally, when your MAGI tops $150,000 there is no special allowance.

Remember that passive losses that are not allowed to be deducted in the current year may be carried forward to future tax years to offset passive income, and may be deducted in the year in which you sell the property.

A rental property may turn out to be a great investment if bought at the right price and housed with the proper tenant…. Think Donald Trump!

For more information regarding the tax laws on rental properties see , or give us a call. We’ll help get you organized. How do you think you would fare in this type of investment?

Stephen Osborne

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