Making the Most of your Money Now by Jane Bryant Quinn

Author:Jane Bryant Quinn
Language: eng
Format: epub
Publisher: Simon and Schuster
Published: 2009-07-15T00:00:00+00:00

Business Property

Your rental home is treated as a business property if your own use amounts to no more than 14 days or 10 percent of the time that you rent it, whichever is more. You allocate expenses to personal or business use, just as you would if it were a personal residence. But in this case, you cannot deduct the mortgage interest and taxes for the short time that covers your personal use. On the other hand, you get a break when you want to sell. You can do a tax-free exchange for a different property (talk to an expert in commercial property transactions about this). If you sell at a loss, that loss is deductible from your ordinary income.

If a rental agent manages your house or condo: You can normally write off expenses only against your rental income or any income you’re getting from other passive investments—meaning businesses where you’re a silent partner. You will probably have excess expenses that can’t be deducted currently. Just carry them forward. Unused expenses can be deducted from the profits on this or any other passive investment when you sell.

If you manage the property yourself or actively participate in the management: In general, this covers people who find their own renters, collect the money, and handle maintenance and repairs. You may be able to write off all the expenses, even if they exceed your rental income. That creates a tax shelter. Some of your ordinary earnings are protected from tax.

You qualify for this shelter if you meet one of the following tests: (1) Your adjusted gross income (not counting income and losses from other shelters) doesn’t exceed $100,000. In this case, you can write off up to $25,000 in business losses, including depreciation. (2) Your income falls between $100,000 and $150,000. Over that range, the $25,000 deduction gradually phases out.

There’s one exception: you will not qualify for tax shelter if your tenants, on average, rent your house for fewer than seven days at a time. In short, there is no tax break if you own a ski condo that attracts principally weekend renters.

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