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Old 02-10-2011, 04:41 PM
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Renting out primary at less than mortgage

We had to rent out our primary residence in Colorado for 1 year while I took a medical fellowship in another state. We rented it on July 1, 2010. Due to the terrible real estate market in Denver and our low equity in the home, we had to rent for the home for less than our mortgage payment. We are renting a home in another state. Our mortgage payment is approximately $1500/mo and we rented the home for $1200/mo. I've always done my own taxes with the help of online software. How is this sitatuation going to affect my taxes? Can I deduct the loss from each month ($300) from the rental "income"? We're already taking a huge loss on this house (value has dropped considerably due to nearly foreclosures). How do I "stop the bleeding" by getting the best deal on my taxes? Our combined income is about $70,000.


Last edited by MTcowgirl : 02-10-2011 at 04:45 PM. Reason: Additional info


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Old 02-11-2011, 04:36 AM
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“How is this sitatuation going to affect my taxes? Can I deduct the loss from each month ($300) from the rental "income"?”---> Basically, it depends on the situation; I guess as the residence in Colorado was rented for 15 days or more and was used for personal purposes for more than 14 days or 10 percent of the days rented, whichever is greater, your allocable rerntal expenses are allowed ONLY to the extent of rental income. Your residence is considered to be vacation home and is subject to vacation home limit. You must allocate your rental expenses in three separater steps to deduct them; first, the interest and taxes are deducted; second, utilities and maintenance expenses are deducted; and finally, depreciation expenses is deducted For utilities and maintenance, and depreciation expenses to be deductible, there must be positive income. Expenses are allocated between rental and personal days before the limits are applied. The IRS requires that the allocation be in the basis of the total days of rental use of personal use compared to the total days of use.; Assume that in 2010 last year, you rented the residence in Colorado for 7,200,$1,200*6=$7,200 for 184 days form July 1st to Dec 31st 2010, and used it for personal purposes for 181 days, from Jan 1st to 30th . Also assume that you had operating expenses ; interest and taxes $6,000, utilitieesd and maintenance $5,000 and depreciation expenses$8,000. Then the IRS requires your rental income or loss be calculated as follows; Gross rental income; $7,200
Less; Tier #1: interest and taxes(50%; 184/365=50%);$3,000(50%*$6,000 as above)
Balance; $4,200($7,200-$3,000)
Less; Tier #2: utilities and maintenance; $2,500;( $5,000*50%)
Balance; $1,700;($4,200-$2,500)
Less;Tier #3: depreciation;$1,700, not $4,000( as depreciation is limited to $1,700)
Then your net income is $0
The interest and taxes allocable to your personal uses of the residence,$3,000;($6,000-$3,000)=$3,000 are deductible as itemized deductions on Sch A of 1040. If you do not itemized deductions, then it will carry forward. The personal portion of the utilities, maintenance, and depreciation, $2,500 and $4,000 respectively are nondeductible persona expenses.



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