A NEW INCOME

A New Income Q&A

Q: I have a question about rental income regarding taxes...?

In December 2007, I purchased a new home (my primary residence) and I began to rent out my previous home. Since it was only rented out one month of the year, how does this affect my taxes? I am a new "landlord" and could benefit from other people with property out there. How do taxes work when you have multiple properties? I've heard it counts as "income" even though the renters are just paying the mortgage which is still in my name? Thanks for your advice in advance!

A: OK, to do this properly, consult a tax preparer and have them set up your rental property schedule for 2007 taxes. Your monthly rent (not deposits unless kept) are considered income in the year your tenant paid it. This income is offset by expenses: Interest, property tax, insurance, PMI, all expenses associated with the rental (cleaning, painting, maintenance, advertising). Also, keep track of mileage driving back and forth to the property; deduct whatever the IRS says you can for business use. Next you'll depreciate the property. Say the house has a cost basis (the money you have into it) of $100,000. Subtract the land value (let's say $15000) and you have a depreciatable building cost of $85,000. Divide this over 27.5 years (IRS rules) and you can write off $3,091 per year. You'll find rental properties are terrific tax write offs, as long as you keep good records. Also make sure your rental is properly insured as a rental property, not under a homeowners policy. Good luck.

A New Income Q&A A New Income