Rental Property

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Bill McNeal
Posts: 202
Joined: Tue Feb 23, 2010 2:57 pm

Rental Property

Post by Bill McNeal »

I'd like to get started in rental property. This would be in the San Francisco area. I've never owned any property to rent out before.

From what I've read so far, at this time I would not meet the definition of real estate professional and will be subject to the 3.8% surtax on rental income. Also, I cannot deduct any real estate expenses from my active income sources.

A few questions:

Are there any good beginner resources to find more information to get started?
Does the 3.8% surtax apply to gross or net rental income after expenses?
Even if I am not a real estate professional, can I still deduct everything (mortgage, insurance, property taxes, repairs, etc.) up to the gross rental income, so there could be no taxable rental income until depreciation recapture after property is sold?
Is it feasible is it to own investment property for the capital gain rather than cash flow? The idea is to build equity over time by having rent payments cover expenses.
Calm Man
Posts: 2917
Joined: Wed Sep 19, 2012 9:35 am

Re: Rental Property

Post by Calm Man »

OP, you do not know the answers to any of the questions you ask. That of course is fine. Why don't you ask an initial question. What makes you think you can profit from rental real estate and why bother?
lovejoypeace
Posts: 213
Joined: Mon Jan 20, 2014 2:24 pm

Re: Rental Property

Post by lovejoypeace »

Seems like you have more tax questions than basic rental property questions. Therefore, if you want to read, start with the IRS publication on the subject:
http://www.irs.gov/pub/irs-pdf/p527.pdf

There are a lot of "it depends" answers concerning taxation and rental property. Without knowing your total income picture it is difficult to advise you.
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patriciamgr2
Posts: 861
Joined: Mon Nov 19, 2007 2:06 pm

Re: Rental Property

Post by patriciamgr2 »

Landlord.com has some links to how to run credit checks, how to evict a tenant, etc. I rely on IRS publications (& maybe Fairmark.com) for tax issues. Please be sure you understand how deductions associated with the property will impact your basis (which will determine how much tax you pay when you sell).

The following point is made over & over again in posts on this Forum (search "Landlord" or "rental property" to see some of the threads): Owning a rental property is a business; it's not a passive investment no matter what the IRS says about your status. It can be very lucrative, and, if you select tenants properly, often is not that time consuming. But it is a real job. Let me emphasize that you need to screen tenants very carefully and, even then, prepare for the unexpected happening every once in a while. [My personal "rental from hell" lost value because of awful people who moved in across the street from the house I owned, for example.]

If you are counting on capital appreciation, remember the old saying that "you make money when you buy the property"--in other words, you need to buy at an attractive price. The best deals often go to investors who are buying multiple condos from a developer; or who can do an all-cash deal (& leverage up after the closing); or who have the personal expertise (or a team in place) to do a quick improvement of a fixer. If you are planning to use bank financing, you'll want to check rates & how much of a down payment is required for a new real estate investor. You'll need to have enough cash flow to handle scheduled repairs, damage done by tenants and vacancies. When you run your numbers, be sure to include liability insurance (many investors also drop rentals into separate LLCs to limit liability).

Good Luck!
cmr86
Posts: 366
Joined: Fri May 02, 2014 8:21 pm
Location: Sacramento, California

Re: Rental Property

Post by cmr86 »

Hats off to you if you can even look at the housing prices and not have a jaw drop in SF.
tj
Posts: 9368
Joined: Wed Dec 23, 2009 11:10 pm

Re: Rental Property

Post by tj »

What is this 3.8% surtax on rental income? I own rental property in California, I am not an RE professional, and I paid no such tax on the 1040 or 540.
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