Burn That Belly
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Selling vs Renting out
- Thread starter OCVillager
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True most of the time except if you income is below a certain amount then you can take active real estate tax losses of up to $25k against ordinary income OR if you are a real estate professional then you there is no cap on active real estate tax losses that can offset against ordinary income.
I would use the inflation rate as a conservative appreciation % like 2-3% annually, anything more than that is gravy.
Well, eventually as it becomes cashflow positive, you will be able to deduct the carry forward losses from depreciation. If you never reach the point of being able to claim depreciation before you sell, the plus side is that you won't have depreciation recapture tax to pay.
You still need to claim depreciation on your taxes, but what I'm saying is the unallowed losses will cancel out the depreciation recapture when you sell. So in real cash terms, you won't have to write as big of a check to the IRS upon selling.
However, if you plan on holding forever, it's a mute point anyway. Eventually the property will become cashflow positive due to increasing rents and declining debt, and at that point you will be able to benefit from the carry forward depreciation.
If you hold until you die, then your heirs won't have to pay any of the capital gains or depreciation recapture... It's one of the best tax breaks in the IRS code!
Otherwise, as your property appreciates and ltv starts going below 60-65%, it's really hard to get a good ROI unless you have a cheap mortgage and make very optimistic assumptions about appreciation, rents, maintenance, costs, etc. Put it in a spreadsheet and it won't be hard to convince yourself.
I don't think the depreciation deduction works that way. It can be an offset to the rental income if the property were cash flow positive, but you can't take it to offset your non-rental / ordinary income and get a tax benefit. Said differently, its capped each year as an offset to rental income. If its ready CF negative, you don't get a tax write off.
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usctrojancpa
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ChiKid24 said:
True most of the time except if you income is below a certain amount then you can take active real estate tax losses of up to $25k against ordinary income OR if you are a real estate professional then you there is no cap on active real estate tax losses that can offset against ordinary income.
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usctrojancpa
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Burn That Belly said:
I would use the inflation rate as a conservative appreciation % like 2-3% annually, anything more than that is gravy.
Liar Loan
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zubs said:
Well, eventually as it becomes cashflow positive, you will be able to deduct the carry forward losses from depreciation. If you never reach the point of being able to claim depreciation before you sell, the plus side is that you won't have depreciation recapture tax to pay.
zubs
Well-known member
According to this article, the IRS don't care if you didn't deduct it. They'll get their money when you sell.http://homeguides.sfgate.com/taking-depreciation-rental-property-hurt-sell-45457.html
However, this works to my strategy of never selling rentals.
However, this works to my strategy of never selling rentals.
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Liar Loan
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zubs said:
You still need to claim depreciation on your taxes, but what I'm saying is the unallowed losses will cancel out the depreciation recapture when you sell. So in real cash terms, you won't have to write as big of a check to the IRS upon selling.
However, if you plan on holding forever, it's a mute point anyway. Eventually the property will become cashflow positive due to increasing rents and declining debt, and at that point you will be able to benefit from the carry forward depreciation.
If you hold until you die, then your heirs won't have to pay any of the capital gains or depreciation recapture... It's one of the best tax breaks in the IRS code!
zubs
Well-known member
Generational wealth is created through property.
Why buy life insurance when you can just leave rentals to your family after you die?
I asked that to a life insurance salesman once, and he said there are different reasons life insurance is superior, but I wasn't convinced.
A few friends of mine manage multiple rentals and have no other job. They inherited these rentals from their parents.
I also collect houses.
Why buy life insurance when you can just leave rentals to your family after you die?
I asked that to a life insurance salesman once, and he said there are different reasons life insurance is superior, but I wasn't convinced.
A few friends of mine manage multiple rentals and have no other job. They inherited these rentals from their parents.
I also collect houses.
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OCVillager
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IMO, this is a super common and totally misguided mindset. Unless every time your property appreciates a little, you are constantly borrowing more against it to keep buying more rentals.zubs said:
Otherwise, as your property appreciates and ltv starts going below 60-65%, it's really hard to get a good ROI unless you have a cheap mortgage and make very optimistic assumptions about appreciation, rents, maintenance, costs, etc. Put it in a spreadsheet and it won't be hard to convince yourself.
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irvineband
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yes leverage. yes there is risk but if you put 50% down on a property even the 3% yearly increase is like 6% earnings. Using other people?s money.