Property Tax Deduction Loophole

Tax
22

He likes the “Live in GF” with free rent maybe haha

23

You will depreciate the property though, no? which menas you’ll incur capital gains. Not sure how much of a difference this makes.

24

you know my rent was 1500$, and rent controlled, right?

25

I was referring to you convincing your friend to buy and life choices (ahem $3.5M…)

Anyway it’s Friday! :slight_smile:

26

Then there is no need to move till you have children of over 3 years old. Can buy a targeted primary to be rented out in the meantime.

27

Suggested him to get an investment property and continue to live in his rent controlled apartment, but he and his wife are fixated on the $3.5M home.

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28

Image :slight_smile: Living in a rent-controlled is not the right image to project a highly successful career. For example, can’t invite friends to show off your house or when your extended family visit, they may make comments that you don’t want to hear.

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29

Hence he needs to lead by example or else his friend will never listen to him :joy_cat:

30

Same pro-rata rules apply. You buy a 1M home, 50% rented, 50% owned. When you sell it 2M, your ownership is 50% that gets 500k (each owner gets 250k) exemption, rest is set right with investment property tax filing.

31

I thought that when you sell depreciation gets added back. So it has no effect on this.

32

I don’t think it’s that simple. Under current rules, the capital gains exclusion gets prorated based on the percent of time it was used as a rental vs primary. So if you rent it for 8 years then live in it 2, you only get to exclude 20% of capita gains up to a maximum of 100k.

You used to be able to move in for 2 yrs and exclude 500k prior to 2009 or so.

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33

So that’s what you’ll do when you buy a place?

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34

Roommates made me rich. Started house hacking in 1976.

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35

Can your house be owned by an LLC and the LLC rents to you? You can deduct 100% of all costs including depreciation and I’m sure your LLC will be generous in the rent it charges you? :slight_smile:

36

That would be worse. Your LLC will need to pay tax; and the rent income and the cost are just a wash

37

In any case, if there is rental income, you’d need to pay tax? But at least you can claim expenses where you otherwise cannot for your primary residence.

38

Rental income is sheltered by depreciation and expenses

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39

Why don’t you do a sample tax filing? I think the effect is zero for most people

40

Violating tax laws if the gap is significant. You might have seen a question that requires you to affirm that you have been renting your place at market rate… So getting a “generous” deal means you are not at market rate and the person getting the subsidy will be required to file taxes on the subsidy as discount below market rate is considered income.

41

Even if we were to rent it close to market value, it would may still make sense in some cases due to:

  • depreciation
  • expenses
  • property tax deduction (10k SALT cap)
  • mortgage interest (mortgage > $1M)

I think this is what rich people do. They don’t own their houses, but they rented through some shell company?

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