Should You Sell or Rent Your Former Home?

1.30.2020 | When relocating for a job, you may try to sell your house but it just doesn’t work out. Even though you did everything correctly, the market could just be too unfavorable for you at the current time. Even if that is the case, you shouldn’t give up on the property altogether. You could think about renting out your home instead of selling it. Renting your home offers some advantages that you wouldn’t encounter with home sale.

Advantages of Renting Out

  • Rental income can cover some or all of the mortgage payments. You might even make a profit if your monthly expense is low enough
  • You may be able to continue to build equity at the expense of the renter — especially if your particular market is not affected or minimally affected by the slowdown. If your mortgage has been in existence for a number of years, more of the payment may be being applied to principal
  • Landlords gain tax advantages in addition to the regular deductions of mortgage interest and taxes

Rental property is considered to be a real estate investment. Therefore, as an investor, a number of tax breaks become available to you. If you actively participate in rental real estate activity, you might be eligible to deduct up to $25,000 of annual rental loss against other income. The IRS considers you to be actively participating if you have made management decisions in a significant and bona fide sense, such as approving new tenants, deciding on rental terms and approving expenditures. In addition, a landlord can depreciate the value of the property against the income generated on the home.

Depreciation is only a paper deduction, since homes usually tend to go up in value over time. A landlord also can claim a depreciation loss for appliances in the home. This can be done in one lump sum or spread out over a number of years. Any depreciation amount has the effect of lowering your taxable income. It’s even possible to claim enough deductions to show a net loss on the property, even though you’re receiving rental income each month from your tenants.

The above is an excerpt from Orion Mobility’s 2020 Tax Guide, which addresses a wide variety of tax situations. For everything you need to know for the 2019 tax year, download your complimentary copy.

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