Payoff mortgage . Tax implication on investment property

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Payoff mortgage . Tax implication on investment property

Postby Skyler » Fri Dec 28, 2012 11:10 am

I am trying to make a decision on paying off a mortgage on my investment property. Could use guidelines on tax implications.

I lived in this property and recently had to relocate and thus started renting out this place. I get $1500 per month as rent. My mortgage is about $1150 on this property ( including escrow for property tax). This is a condo and I pay monthly condo management fee of $370. ( net -20 ).

So, I am assuming that I don't pay any rental income tax because mr Mortgage nd condo fee combined is more than my rent income. Is that a correct assumption?

My mortgage balance is about 130k. I do have savings in my portfolio account that's just bout 130k. I am debating on whether to payoff the loan or not . My interest rate on the mortgage is 4.75% ( refinanced in oct 2009 ).

If I payoff my mortgage, I'd assume I'll have to pay income tax on my rental income? Not sure if that's better option than keeping mortgage. Can you help clarifying.

I am 40, married and filing tax jointly. I don't have other mortgages or properties, I am currently staying in a rental place. This investment property was never intended to be an investment. Had to relocate for job reasons. I don't want to sell, because I might move back in next 10-15 yrs.
Last edited by Skyler on Fri Dec 28, 2012 3:52 pm, edited 1 time in total.
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Re: Payoff mortgage . Tax implication on investment property

Postby porcupine » Fri Dec 28, 2012 12:42 pm

If you are definitely past the point of deciding whether or not to hold on to the property (i.e., you are holding on to it regardless of this discussion) ...

- if you are planning to buy a house in the next year or so, I suggest that you do not pay off the mortgage.
- if you are not planning to buy a house in the near future, you could pay off the mortgage. But note that the trade-off is that instead of paying interest on the mortgage balance, you will end up paying taxes on your rental income.

For a detailed analysis, read a book like this one. You could also spend some time on other websites that cater to landlords such as Mr.Landlord. The point being that you can reduce the amount of tax owed by using depreciation and other available deductions to lower your taxable rental income.

- Porcupine
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Re: Payoff mortgage . Tax implication on investment property

Postby Skyler » Fri Dec 28, 2012 4:00 pm

porcupine wrote:If you are definitely past the point of deciding whether or not to hold on to the property (i.e., you are holding on to it regardless of this discussion) ...

- if you are planning to buy a house in the next year or so, I suggest that you do not pay off the mortgage.
- if you are not planning to buy a house in the near future, you could pay off the mortgage. But note that the trade-off is that instead of paying interest on the mortgage balance, you will end up paying taxes on your rental income.

For a detailed analysis, read a book like this one. You could also spend some time on other websites that cater to landlords such as Mr.Landlord. The point being that you can reduce the amount of tax owed by using depreciation and other available deductions to lower your taxable rental income.

- Porcupine


Thank you Porcupine. I will review the books you mentioned above.
Skyler
 
Posts: 26
Joined: Fri Dec 28, 2012 10:41 am


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