Taxes On Rental Property

HELP-If you purchase a rental property that has appreciated greatly (Hawaii), yet, the rent does not cover the mort. payment all the time (divided rental pool), and your income is over 125K, causing you to lose out on other tax advantages, is there any advantage to having an investment like this? :-o

Comments(4)

  • tony17112acst30th July, 2004

    Even if you lose some money on a monthly basis, you're still paying off principle, right? As long as the losses are not greater than the principle, you're making money.

    Also, EVEN IF you do lose money, it sounds like you've hit it big in the appreciation of the property itself. Be sure to add in the profit of appreciation per year when figuring if you are making a profit; my guess is that you are.

  • Mauimom30th July, 2004

    Thanks for your insight. It was very helpful! grin

  • NewKidinTown30th July, 2004

    Personally, I don't see any advantage in continuing to hold this negative cash flow property. I would take advantage of the capital gains tax deferral opportunity offered by a 1031 exchange. Acquire other rental property somewhere else that produces a positive cash flow.

    Since your other income is high enough that passive loss allowances are phased out for you, you are correct that it makes little sense to continue holding onto a liability that does not reduce your taxes.

    If you had other property with a positive cash flow, you will probably offset most of that taxable rental income with your depreciation expense. Therefore your net cash flow essentially becomes tax free income.

    If you just want to reduce your tax bill, consider investing in low income housing projects that give generous tax credits each year. When your net passive income is positive -- and taxable -- the low income housing project investment can provide another tax shelter opportunity to net passive losses against your passive income while still taking advantage of the tax credit afforded by the investment.

    Consult your financial planner for specific details.

  • Mauimom30th July, 2004

    Thanks for your insight as well. Honestly, I not sure what we'll do with this property, but the replys give us a lot to think about. :-?

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