Saw this on Jim the Realtor’s blog. Not sure if it’s legit or not.
If you rent out your entire home or even a room in your home (or your vacation property) for at least 15 days in a given year, you can get a surprising tax break under Trump’s new federal tax law!
How it works: As a short-term landlord, you can get around the new law’s caps on deductions for property taxes and mortgage interest.
Example of Deducting Property Tax: Let’s say that your annual property taxes total $14,000. Trump’s new law lets you deduct a maximum of $10,000 of combined property taxes and state and local income taxes. Say you rent out 50% of your home for half the year, but use the home yourself for the other half of the year. You can deduct 50% of that six months’ worth of property taxes–25% of the total property tax bill, or $3,500, on federal Schedule E, “Supplemental Income and Loss.” You can also deduct $10,000 on your Schedule A for itemized deductions, giving a total deduction of $13,500 rather than just $10,000.
Example of Deducting Mortgage Interest: Under the new law, for any first or second home you bought after 2017, you can deduct interest on up to $750,000 of the mortgage loan (compared with the $1 million previously). But rental property has no such cap. So if you rent out, say, 50% of a home that carries a $900,000 mortgage, you can deduct interest paid on the first $750,000 of the loan, as well as interest on half the remaining $150,000.
Note: Even if you opt for the standard deduction, rather than itemize–which means you can’t take the standard type of property tax and mortgage-interest deductions–you can still take deductions corresponding to the amount of time your house or a portion of it was rented out.
The recent changes to the tax law are very new, and it’s unclear how the IRS will interpret them, so talk to a professional to make sure you’re in the clear. Give him/her this link:
Seriously, what if you buy a $3M home and rent it out, then go rent a $3M home? Does it alter the rent vs buy equation in any way? Let’s leave out the psychological factors.
500k ggain exclusion is the only thing i am aware off.
You get to deduct property taxes, you get to deduct all expenses / maintenance, and mortgage interest
I thought about it when I read the tax law this year and then discarded it. You have to have income to deduct against or you are just accruing till you sell to use against capital gains. so doesn’t really work out all that well since on expensive bay area homes rent < mortgage. Now you are going to pay taxes and take your deductions against the rent (especially if you do the more extreme version of renting the whole house to a friend and renting theirs in return). Even in the degenerate case where you dont charge each other rent, all you are doing is accruing passive losses.
Best is to buy 2 small houses instead of 1 big one. Live in one, get 500k free capital gain. Another rental to enjoy the probably non-existent “deduction on property tax”.
This way your social responsibility score doubles. Not only you bought a roof on your head, avoids being a homeless person, also you provide housing service to another family.
So stop buying 3.5M houses, buy 2 at 1.75M each instead
Logically, it is correct and the landlord can deduct it. If IRS audits, they need to have proper proof to show it is really rented. But, who wants to share the primary home for a tenant?
I tried to convince a friend to buy, and rent 2 of the rooms. he said he didn’t like having room mates, i said good luck wasting 3500$ on your life choices.
