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Posted by krasi on October 19, 2007, 10:20 pm
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I understand that if you have a real estate investment, for
many years of ownership, the distributions you will be
receiving will be tax-free , since they are considered a
return of capital and therefore not subject to taxes. Is it
true that your rental income will not be taxed till you
recover the investment fully? Thanks.
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Posted by joetaxpayer on October 21, 2007, 7:47 pm
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krasi wrote:
> I understand that if you have a real estate investment, for
> many years of ownership, the distributions you will be
> receiving will be tax-free , since they are considered a
> return of capital and therefore not subject to taxes. Is it
> true that your rental income will not be taxed till you
> recover the investment fully? Thanks.
No. None of this is true.
There's a schedule E tax form to fill out. You list the
rental income and all allowed expenses including
depreciation (I forgot over how many years, but it's about
3% of the cost of the property, given you don't depreciate
the land).
You net out these expenses against the income, and if the
number is still positive, congratulations, you pay tax. If
you are positive after including the depreciation, this is a
good thing. If negative, then depending how high your income
(I believe $150K/yr joint is the cutoff) you may be able to
take the loss against regular income. If not, that loss
carries forward to next year.
The year you sell, if enough time has passed, you likely
have a large gain, due in part to appreciation, and in part
to the depreciation you took all those years. The
depreciation recapture is taxed at a favorable rate. No
offense, but if you do not understand the basics, you should
read up on it until you do, and consider that real estate is
unlike a stock investment. Cisco never called me to say the
roof is leaking, or to unclog their toilet. (Actually, the
best advice I give to potential landlords is this - rent the
1990 movie "Pacific Heights".)
Joe
www.joetaxpayer.com
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Harlan Lunsford on October 21, 2007, 7:47 pm
Please log in for more thread options krasi wrote:
> I understand that if you have a real estate investment, for
> many years of ownership, the distributions you will be
> receiving will be tax-free , since they are considered a
> return of capital and therefore not subject to taxes. Is it
> true that your rental income will not be taxed till you
> recover the investment fully? Thanks.
A trite saying, I know, but... If it sounds too good to be
true, it probably isn't.
IOW, not that I know of. Now a formal real estate
investment trust might be treated differently, but not for
individually held real estate.
ChEAr$,
Harlan Lunsford, EA n LA
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Paul Thomas, CPA on October 21, 2007, 7:47 pm
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> I understand that if you have a real estate investment, for
> many years of ownership, the distributions you will be
> receiving will be tax-free , since they are considered a
> return of capital and therefore not subject to taxes. Is it
> true that your rental income will not be taxed till you
> recover the investment fully? Thanks.
That's not true at all.
Gross income received in a rental activity is reduced by
rental expenses, of which depreciation is one of, and the
result is a taxable profit or a deductible loss. Depending
on your involvement in the rental activity, losses might be
suspended till you have profits from that property. But any
profits are taxed at regular tax rates.
--
Paul A. Thomas, CPA
Athens, Georgia
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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