Mortgage Exemption

[DealingWDrama]

What is the name of your state (only U.S. law)? Florida. My husband and I are looking to purchase a new home for ourselves; however, with the housing market the way that it is at this time we do not plan on selling our home now. We are considering renting our home we live in now. If we rent our home for 800 to 900 dollars a month, but are paying a mortgage of the same amount - is the mortgage considered an expense and therefore tax deductable as an expense?

 

[FlyingRon]

What is the name of your state (only U.S. law)? Florida. My husband and I are looking to purchase a new home for ourselves; however, with the housing market the way that it is at this time we do not plan on selling our home now. We are considering renting our home we live in now. If we rent our home for 800 to 900 dollars a month, but are paying a mortgage of the same amount - is the mortgage considered an expense and therefore tax deductable as an expense?

You may wish to spend a little bit of money and consult a tax advisor such as a CPA.

But in the simplest explanation: The rent is income
Yes the mortgage and taxes are deductions as is depreciation (which you are required to take). You can also deduct other expenses involved (maintenance, etc...). Rental is typically a passive activity which means that your deductions related to the activity can only be taken against income from similar activity (you can't use excess deduction against your regular income).

Another implication is that you will progressively lose favorable tax treatment for any gain in the sale as time goes on. You also need to check to see if renting the property will violate the terms of your existing mortgage.

 

[tranquility]

The mortgage is not an expense, the amount you pay in interest on the loan is. A passive loss is first applied against passive income, but for income property where you actively participate (which would be the case here) you can take up to $25,000 of the loss against non-passive income. (Depending on your overall AGI as the amount is rateable for incomes over certain amounts.)

 

[LdiJ]

The mortgage is not an expense, the amount you pay in interest on the loan is. A passive loss is first applied against passive income, but for income property where you actively participate (which would be the case here) you can take up to $25,000 of the loss against non-passive income. (Depending on your overall AGI as the amount is rateable for incomes over certain amounts.)

I agree with Tranquility. However, you probably should get at least a quick consult with a local tax professional, as there are somewhat complicated new rules regarding the capital gains exclusion for selling a primary residence, which are easier explained in person.

You will lose your capital gains exclusion if the home was not your primary residence for two of the last 5 years at the time the house sells. Also, you would lose some of the exclusion for the period of time that the home would be a rental property.

That may not matter much if you don't have a ton of equity in the property, or if you are close to being upside down at the moment, but its still something that it would behoove you to go over with someone local.