Hi,

Thanks in advance for any advice.

I've lived in my home for 2+ years, but now have to move for work. I want to rent my primary residence (given that the market isn't exactly booming, I'd rather not sell). I am confused with the affect it'll have on my taxes. Could someone please break it down for me?

Currently I pay:
-- $2500/mo. in mortgage interest,
-- $500/mo. in property taxes.

I take that $3000/mo. as a deduction. I also pay another $600/mo. for insurance, etc.

-- If I rent the property for $3000/mo., what precisely will happen?
-- What if I can only rent it for $2500 (unfortunately a likely scenario)?
-- And where does depreciation fit into all of this?

I would have no other rental income and my earnings are over $150000/year.

Thanks!

The first thing to note is that if your Adjusted Gross Income is over $150,000, you would not be in a position to deduct any rental losses as you would be subject to the Passive loss activity limitations!

Now, regarding Renting out the property for $3,000 per month, or $36,000 per year you would have to report the following situation on Schedule E as follows:

Rental Income................$36,000

Expenses:
Mortgage Interest..........<30,000> Per Year
Real Estate Taxes......... .<6,000> Per Year
Insurances....................<.......>
Repairs & Maint..............<.......>
Depreciation..................<.......> [Depreciation is a deduction, the calculated as the value of the building (considered depreciable property) depreciated over 39 years]

The result is certainly a loss, but the loss is going to be suspended and so you would not be allowed to deduct any of these losses against your regular income.

Now, regarding Renting out the property for $2,500 per month, or $30,000 per year you would have to report the following situation on Schedule E as follows:

Rental Income...............$30,000

Expenses:
Mortgage......................<30,000> Per Year
Real Estate Taxes...........<6,000> Per Year
Insurances....................<.......>
Repairs & Maint..............<.......>
Depreciation..................<.......> See Note above for Depreciation.

The result is also a loss, but the loss is also going to be suspended in this scenario and so you would not be allowed to deduct any of these losses against your regular income.

But, one thing is for certain assuming what you have stated regarding your income and expenses, you would not have any rental profit from either of the 2 possible scenarios that you have outlined. But, unfortunately, it seems that you not be able to deduct any of these losses on your personal tax return due to the passive loss limitations rules, due to the fact your Taxable Income is expected to exceed $150,000!

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That is EXACTLY what I wanted to know. Thank you very much!

You are most welcome!

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Taxguru
Piggy backing off this post, are there any mortgage considerations that need to be made on the primary residence? Lets say, moving to the new state, you would like to purchase (which would then be "new" primary residence)?

Thanks
JT

Please see this link.

Renting primary residence

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I'm in a similar situation and found this forum via Google search. Very useful and thanks for the info.

If I could add to this scenario with details from my own, what happens when/if the residence is sold? In my situation, we have lived in the house for more than two years, we're temporarily converting it to rental through the winter, and intend to re-list in the Spring. We will have a loss each month but will be subject to the limitations you mention above given our income. So, when we sell I'm assuming the gain is no longer tax free, correct? But would we then be able to take the losses? In other words, are they deferred? THanks much for the information.