Questions on being a landlord (tax related)

I wasn’t going to write off any deperciation as I have enough receipts from “home improvement” to take it to a wash right now. Would there be any gain to using a depreciation still? How exactly does what you claim on the scedule e for depreciation come into play when you sell the property? Do you pay tax on the difference between the claimed depreciation price and sale price?

Thanks!

Upon the sale of the house you calculate capital gain as selling price less basis which includes depreciation taken OR ALLOWABLE (key part). This is done to prevent double dipping of deductions. In other words…you need to take the depreciation expense every year. If you haven’t been taking it, catch it up now.

Let me know if this makes sense (don’t feel like typing more from my phone right now)

Ok I have a few questions guys. I’ll be talking to a CPA and lawyer but just for fun…

I’m looking to buy a rental house off a family member. I want to pay them off in cash, but I’m not sure the best way to do this for taxes.

Also should I put the house in an LLC? If I go LLC should I have it based in Delaware or Montana so I don’t have to pay sales tax? If I buy a high dollar car should I put it on the LLC to save the tax money?

for depreciation and capital gains…say you bought the rental house for $100K then sold it for $150K at a later time…$50K would represent your capital gains in a simple world. although since you also depreciated the property by $50K in the time that you owned it you have realized a capital gains of $100K as far as the tax man is concerned.

you owe taxes on whatever the difference between bought and sold price plus the amount you depreciated the property.

this may be slightly over simplified, but it is the general situation.

---------- Post added at 08:51 AM ---------- Previous post was at 08:38 AM ----------

can’t say for sure but depending on how the property transfer goes- like if you pay cash but only report a transfer of $1- you might be getting into gift taxes and at a minimum and whenever you sell it you would still have to realize the gain over whatever the value was at the time of transfer i believe.

So for the sake of future cap gains tax would it not make more sense to only take file the depreciation if you have a tax year that you can’t cover the rent with other “costs”?

Or are we figuring that you should take the depreciation and take a loss for the year on the rental and assume the extra money received(given future value) will outweigh the now seen cap gains tax? hmmm

Depreciation always seems to make sense… You just have to make it right when you sell.

You have to depreciate no matter what. When you sell, you will pay cap gains tax as if you had taken all depreciation that was allowed to be taken, whether you actually deducted it or not every year. Take the loss.

Really? Where’d you get your law degree from?

---------- Post added at 04:33 PM ---------- Previous post was at 04:30 PM ----------

Put the house in a NYS LLC - no need to go Delaware or Alaska or whatever unless you’re seriously concerned about the Rule Against Perpetuities or you have some severe creditor issues.

As for the purchase, you could structure it so the family member holds the mortgage and you pay them off over time - that way you build equity with other people’s money (your tenant’s) and the family member gets an income stream. You can deduct the mortgage interest along with all the carrying costs.

Or, if you just do a cash deal then you don’t have much to worry about - your family member might have a problem with capital gains but there’s ways around that (i.e. they gift the property to a trust, trust gets a step up in basis, then sells the property to you).

I’m a level 5 Jew Lawyer. You can trust me.

I’d like to set up the LLC in Montana or Delaware because I also buy a lot of cars. Not paying sales tax on $60K cars would help me greatly lol. (LLC would own cars and would be my company cars for the business of course.)

All my homes are in Texas by the way. I need a good Jew Lawyer, looking for a level 10. Are you interested in leveling up?

it’s pretty simple…an LLC does not relieve anyone from personal liability when they are directly involved in the incident in question.

if you cause someone to be injured you are liable no matter how many letters you put after your company name