That's not how income tax works. You can't claim "loss of income" as a tax write off. However maintenance expenses on a rental property can potentially be written off as a business expense whether it is rented or not.
I think you have a misunderstanding of income tax law. In the US at least, failure to receive rental revenue isn't considered a loss for tax purposes. The last rent price has zero relevance for income tax accounting.
Commercial property owners can generally deduct expenses like security, maintenance, utilities, etc but that's separate from rent or lack thereof.
Writing off tax losses isn't equivalent to income. The losses just reduce your taxable income. There isn't actually much upside to having a property sit vacant just to take losses on it, unless you're in some extremely weird tax scenario.
If someone was renting a property at $1000/month, it's still better to re-rent it at $800/month than to reduce your tax bill by something like $400/month (or whatever the taxes would be on the $1000 rent offset).
Real estate investor here. You can't claim "lost rent" as an expense. The deduction you're referring to allows you to deduct up to $25k per year of actual rental losses against your other income, but only if your income is below $150k / year. In no way is this an incentive to leave your property vacant.
> You can not write off the interest on a house that is strictly an income property.
That is not correct. The article you posted seems to imply it, but it is absolutely not true.
Pure rental property is treated as a business property, and mortgage interest on business properties is an expense that is deducted from rental income before determining tax liability. You can even carry a net loss over to your personal return (subject to some limits).
Losses on rental, including depreciation and fixed costs like property tax can be counted against profits on other units. These losses can be carried forward and applied against future taxes indefinitely in the US.
So, leaving an apartment empty that could be rented for $X isnt quite a straightforward loss of $X, since you also gain the ability to offset future taxes.
That's not how things work. When you file your taxes, your rental properties will be treated as a business and the taxes paid there are a business expense. They are deducted from any rental income before the income is counted for the landlord. It is essentially as if the renter is paying the government directly.
Although the US isn't this great that they give you an outright subsidy on rent, I believe if you're in independent consultant you can tax writeoff part of your rent if you have a part of your residence that is used exclusively for business purposes. (Disclaimer: IANAL, IANACPA)
Be careful. If you are thinking of renting out a house remember you need to return a large portion of that depreciation back to the IRS. It isn't free money. Even professional landlords don't know about this.
Pretty sure you can't write off missing rent as a business loss.
Depreciation definitely needs to be fixed. You shouldn't be able to claim 3% of a structures value as business loss every year, without some sort of evidence that you will actually tear down the structure in 33 years. And perhaps after it has been counted as depreciated once, future owners shouldn't be allowed to deduct the depreciation either.
And I would say that maintenance certainly counts as a financial loss when you're considering the property from an investment perspective. If it was a paper investment (stock/bond/whatever), it wouldn't exist. It's part of that specific investment.
If it’s not a primary residence, you don’t get to deduct the taxes from other sources of income. It’s restricted to deducting from rental income. You can carry the loss forward though.
You pay income tax on the profit you made, but you can deduct property taxes, mortgage interest, maintenance expenses, and most importantly - you can deduct the entire value of your house (building, not land) over 27.5 years (at least in NJ). The idea behind that is that you will essentially need to rebuild your entire house after 27 years. However, since you can deduct maintenance costs along the way, you really don’t have to rebuild your entire house all at once, so it works out in the landlord’s favor.
The only down side to the last part is that if you ever decide to sell the property, you need to pay full income tax on the portion of the value of which you have deducted in previous years.
Either way, rental income is taxed fairly with respect to some other forms of business.
No, but you can claim interest and repair costs as a means of lowering your income and other taxes. Taken to an extreme there are some people who pay net zero tax on millions in net income (they don't mind the loss as there is no tax and the long term plan is to make a capital gain on sale).
The original idea was that people would lower the rent to make renting more affordable. This rarely ever happens in practice because tweaks to the law mean that you can claim interest and expenses without actually renting the property (set the rental at an unaffordable price point and leave the house vacant).
100% of mortgage interest on personally-owned rental properties is deductible.
Mortgage interest is itemized just like any other cost incurred, e.g. maintenance, utilities, advertising, property taxes, etc.
The net profit/loss on the Schedule is then applied to your personal return. You might be limited in the size of loss you can apply, but that's an unrelated calculation.
Everybody keeps repeating that landlords can write off rent not received as a tax deduction. You can’t, and if you think about it for a minute, you’ll see it doesn’t make any sense.
Imagine a landlord with 10 properties that rent for $100 per month. That’s $1,000 per month rental income, or $12,000 per year. Assume 10% tax rate, the landlord clears $11,000 after tax.
Imagine now that half of them are vacant. The landlord is now bringing in $500 per month, or $6000 per year. Is it your expectation that the landlord can somehow deduct the other $6k in rent not paid and pay $0 per year in taxes??? No, the landlord would now pay $600 a year in taxes on that $6k in rental income. Naturally the landlord doesn’t pay taxes on money they didn’t receive, but it’s always better to have 90% of the rent after tax, than 0% of it. It is always always more profitable to receive rent than not.
Now, as others have mentioned, it may be worthwhile to lose a few months of rent in return for signing a higher-dollar lease over a 10 year term.
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