Second housing bust on the way

PandaBear · Apr 30, 2009

Originally Posted By: brianl703

Then that becomes a subsidy for landlords. Thank you.

How so? all business deduct expense from revenue, and this is an expense. Rent for business location is also deductible, so is the employee's salary. So is the supply and all things that is needed to run a business. For rental property, it is not really a problem because the renter's rent is not tax deductible, so it is already deducted once. If you make this tax deductible for home owner who live there, then it is never taxed. Make sense?

PandaBear · Apr 30, 2009

Originally Posted By: brianl703

I do believe you can, so long as you only use that printer in connection with your 9-5 job. You can even deduct the space you use for work-at-home arrangements, so long as that space is ONLY used for work-at-home purposes.

Only if it exceed 2% of your income and you file with itemized deduction. and your income is from 1099 (which is sort of a business income anyways).

Kestas · Apr 30, 2009

If landlords are exempted, I can see people buying houses to "rent" to their kin, who would reciprocate in kind. Unintended consequences.

brianl703 · Apr 30, 2009

Originally Posted By: PandaBear

Only if it exceed 2% of your income and you file with itemized deduction. and your income is from 1099 (which is sort of a business income anyways).

Read: http://www.irs.gov/pub/irs-pdf/p587.pdf

PandaBear · Apr 30, 2009

Originally Posted By: Kestas

If landlords are exempted, I can see people buying houses to "rent" to their kin, who would reciprocate in kind.

Thought about that between my parents and I. The problem? Your rental income from your kin is now taxable......

brianl703 · Apr 30, 2009

Originally Posted By: Kestas

If landlords are exempted, I can see people buying houses to "rent" to their kin, who would reciprocate in kind. Unintended consequences.

Yep. That's why it's a stupid idea.

brianl703 · Apr 30, 2009

Originally Posted By: PandaBear

Your rental income from your kin is now taxable......

What if you have an interest-only loan and you are only charging your kin the amount of the mortgage payment? Or, ahh [censored], it doesn't even need to be interest-only, just charge your kin an amount of rent that just happens to be equal to the amount of interest, and then you pay the difference out of your own pocket. Your kin reciprocates on their end, doing the same thing.

Kestas · Apr 30, 2009

What if you charge very little rent both ways?

brianl703 · Apr 30, 2009

The scheme here revolves around the fact that mortgage interest paid by someone else other than the mortgage holder is not taxable.

PandaBear · Apr 30, 2009

Originally Posted By: brianl703

What if you have an interest-only loan and you are only charging your kin the amount of the mortgage payment?

Be prepared for an audit if anything is not close to market rate. When I borrow money from my parents' retirement for my home purchase, I have to pay the rate other banks quote me for. Having an artificially different rate would means you are cheating on taxes. You can put anything you want on the 1040 as long as you feel comfortable facing an audit.

Gary Allan · Apr 30, 2009

Originally Posted By: PandaBear

Originally Posted By: Kestas

If landlords are exempted, I can see people buying houses to "rent" to their kin, who would reciprocate in kind.

Thought about that between my parents and I. The problem? Your rental income from your kin is now taxable......

Who says that you aren't charging at below market rate and operating at a loss? You an also rent with all utilities included ..which brings them in under the deduction umbrella. Even if you break even, you've just swept some major deductions into the red column (how do I know this?).

brianl703 · Apr 30, 2009

Originally Posted By: PandaBear

Be prepared for an audit if anything is not close to market rate.

As if the IRS can figure out what market rate for a property they've never seen the inside of is. Maybe the AC is broke, the furnace busted, the toilets don't flush, and the walls painted an ugly shade of hot pink (is that a redundancy? Is there a beautiful shade of hot pink?)

PandaBear · Apr 30, 2009

Originally Posted By: brianl703

As if the IRS can figure out what market rate for a property they've never seen the inside of is.

Easy, just check the rate that Section 8 pays for in your area. What are you going to get if you derive a few percentage from the market rate? not much. Also remember one more thing. When you sell the home, a property that is used by owner for more than 2 years has a capital gain exemption if you buy another home with the capital gain, if the gain is used to buy another home, up to I think 500k of gain. So if you buy a home for 200k and then sell it for 400k, and buy another home that is 400k with this 200k of gain, this is not taxable. Now if this is a property that is for rent (even to your kin), this 200k gain is now taxed and you have to pay tax on it. I run the numbers very often because my parents have an apartment complex and I always do the tax manually to get a feel of what is the true cost of each decision for them. http://www.bankrate.com/finance/real-est...r-owners-1.aspx

brianl703 · Apr 30, 2009

Originally Posted By: PandaBear

Easy, just check the rate that Section 8 pays for in your area.

That is not market rate. That is a one-size-fits-all rate which the actual property occupants don't have to pay, so it doesn't bear a very close relationship to the condition of the property. (Indeed, I think you get more for a slum as a Section 8 rental than you would on the open market. On the other hand, a property in good condition in a nice area would get more on the open market than it would as a Section 8 rental).

PandaBear · Apr 30, 2009

Originally Posted By: brianl703

That is not market rate. That is a one-size-fits-all rate which the actual property occupants don't have to pay, so it doesn't bear a very close relationship to the condition of the property. (Indeed, I think you get more for a slum as a Section 8 rental than you would on the open market. On the other hand, a property in good condition in a nice area would get more on the open market than it would as a Section 8 rental).

It is a rate that is market, and is adjusted annually. It is not the best rate but close enough for tax reason. Back to the original question of what about renting to your kin as a business at a loss or break even. You should be able to tell easily if it is way out of whack (below section 8). If you rent for more, you are just giving more money to the IRS as there are more taxable income. IRS can also check the newspaper for the "market" rate. That's not too hard in an audit.

PandaBear · Apr 30, 2009

Originally Posted By: brianl703

Maybe the AC is broke, the furnace busted, the toilets don't flush, and the walls painted an ugly shade of hot pink (is that a redundancy? Is there a beautiful shade of hot pink?)

Do you want your kin to live in such a condition just for tax reason?

Tempest · Apr 30, 2009

Quote:

The IRS itself says that in 2009 American taxpayers – individuals and corporate – will spend about 880,000 man-years complying with a tax code that has exploded to 3.7 million words. The agency calculates 2006 compliance cost American citizens and companies $193 billion, meaning that this year our challenged economy will burn through at least $200 billion to march to the mad music of the IRS. Individuals and businesses spend 7.6 billion hours every year trying to comply with IRS requirements, which equates to almost a million man-years. The equivalent full-time labor force to meet those requirements would be 3.8 million people. The $193 billion spent by American citizens and businesses amounted to 14% of the total aggregate tax receipts taken by the IRS.

http://www.informationweek.com/blog/main/archives/2009/04/tax_time_spendi.html?cid=RSSfeed_IWK_ALL

brianl703 · Apr 30, 2009

Originally Posted By: PandaBear

It is a rate that is market, and is adjusted annually. It is not the best rate but close enough for tax reason.

It's not close enough, especially for taxes. How does it differentiate, for example, between a single-family detached house, a town/rowhouse, and an apartment/condo, other than by the number of bedrooms? Each of these types of properties, even if they are all 3 bedrooms, will have a very different fair market rent.

Quote:

IRS can also check the newspaper for the "market" rate. That's not too hard in an audit.

That's not a market rate because no contract has yet been signed on that particular property at the advertised price. The contract may well be signed for a lower price. Do you think your city assessor just opens the classifieds to figure out how much your house is worth, or does he look at actual sales? Same idea.

brianl703 · Apr 30, 2009

Originally Posted By: PandaBear

Do you want your kin to live in such a condition just for tax reason?

That wasn't the point. The point was to illustrate by way of example that a property may not rent for "market rate" for a variety of reasons. In any case, it's easy enough to unhook a wire so the AC doesn't work, the furnace won't ignite...it's very difficult for an IRS auditor to prove that these things weren't pre-existing conditions that resulted in the property having a lower rental value. I suppose the ultimate point here is that the more difficult and ridiculous you make the tax code, the more difficult and ridiculous it is to actually enforce it. Therefore, either allow the mortgage interest tax deduction for all, or take it away for all.

PandaBear · Apr 30, 2009

Then what IS market rate? Is your property one of a kind and unique in the world that it is priceless? or worth nothing? We are not talking about individual human being here, we're talking about a rental property and they are all pretty close. Whatever that is there is a way to come up with a market rate. If the real estate agents can do it, someone in the government (or government's contractor who do audit) could. Your property has a price, and it is not unique like your lovely children at home. Get over it.

Second housing bust on the way

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