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Tax Question (Rental Income from primary residence)


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So i've got what is probably a fairly straight-forward question, but Google has been unable to help me.

In November 2009, I bought a house and received the $8,000 first-time homebuyers tax credit. However, since then I was laid off from my job and just found something else. Unfortunately, its about 60 miles away and the commute is going to kill me. Ideally, i'd like to rent out my house for a year or two and get an apartment near my new job. Between gas, car maintenance, and rental income (minus my rental expenses), this will also save me about $700 a month.

However, i'm worried that if I do this, i'll be screwed tax-wise. I still want my house to be my primary residence, because i plan on moving back into it, however for atleast a year, i'd be renting the house out. Also, I don't expect to make any actual profit from renting the house out (rent would be around my mortgage payment and may even be less). So I really have two questions -

1. If I move out of the house, is there any (legal) way i can avoid paying back the first time home buyer tax credit?

2. How is the rental income taxed? Do i only have to pay taxes if I make profit (ie tennants rent > my mortgage payment) or does it not matter?

If the answers to these two questions are not favorable, i certainly would be foolish to rent my house out temporarily. thanks!

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I don't know much about this at all, but in addition to the tax break you're getting on the home, I do know you want to bone up on depreciation value of rental property.

http://www.real-estate-owner.com/rental-property-depreciation.html

You can recover the cost of income producing rental property by depreciating the property; that is deducting some of the cost on your tax return each year. The IRS acts as if residential real property is losing value, or "depreciating". Of course, the general rule is that the property will increase in value, or "appreciate" over time. Depreciation is an accounting loss - it only shows up on paper.
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I have always claimed rental income as income, no different than my paycheck.

If you wish to stay on the up and up, I'd probably do this. Maintain the house as your primary residence. Rent out part or all of it, except for a bedroom (in theory) which you could claim as yours if the tax man questions you.

A couple of other things. If your renter pays in cash, well, let's just say that could benefit you. Taking an apartment elsewhere might be tax deductible depending on your job. Take the usual tax deductions on the house such as interest, depreciation, etc.

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Talk to an accountant.

I think that there is a 2 out of 5 years rule. i.e. you must have it as your primary res. 2 of the last 5 years when you sell to not pay cap. gains. but you still have to declare the rental income. Also not sure about the tax credit.

If I were you I would just not change your address at the DMV and keep a water bill there in your name (include it in the rent) and still claim it as your primary.

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Can't tell you about the tax credit, but I can tell you some general things.

1) Whatever rent you charge is income.

2) I think the interest on your mortgage is still deductible, though. (However, you're deducting it now, too. So that won't help you.)

3) When you rent it out, it's very likely that your property taxes will go up. (I've never heard of a place that doesn't give a "homestead exemption" to your primary residence. If you rent it out, then you lose that exemption.)

(In addition, a lot of places have laws where, as long as your home is "homesteaded", then your assessed value can't go up, even if the real-world value rises. Rent it out, lose the homestead status, and the property appraiser can re-appraise your property up to what it's current market value is.) (Good news is that if you're like most people now days, your home's value hasn't gone up squat for the last few years, anyway. Odds are, it won't affect you.)

4) I'm just wildly speculating, here, but I wouldn't be shocked if your mortgage company doesn't have the right to object to you renting the place out. At the very least, it's going to need a different kind of insurance.

5) Again wildly speculating, here, but I wonder how many of these things go away if you "rent out part of your house". (Like, everything except one bathroom, which I use once, every weekend.) At least here in Gainesville, (college town), I think that if you rent even part of your house, you lose the homestead.

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If you rent out the home and don't have it as your primary residence you will owe some or all of the tax credit back to the IRS. Best way to find out is go to irs.gov. You should find the answer there, but if not you can call the hotline number and they will tell you.

Your best bet when getting into these situations is to hire an accountant to do your taxes.

You aren't filing the "EZ" form anymore. An accountant to do your taxes is relatively cheap.

I know you can file free online, tax software might cost you $25-$75.

An accountant to do things right might cost you $200 or so...and probably get you a deduction that will save you the $200 anyways.

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Your best bet when getting into these situations is to hire an accountant to do your taxes.

You aren't filing the "EZ" form anymore. An accountant to do your taxes is relatively cheap.

I know you can file free online, tax software might cost you $25-$75.

An accountant to do things right might cost you $200 or so...and probably get you a deduction that will save you the $200 anyways.

yep, and the tax preparers fees are deductible....simply another 'cost';) of doing business

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