Sell or Rent???

[Patrick2013]

What is the name of your state (only U.S. law)?

Colorado

Ok so I currently own a home and am considering renting it out.

My mortgage with PMI is $1,450 and I would be renting for $1,950. But after taking to family and friends it sounds like the full $1,950 goes to my earned income and I would have to pay taxes on the full amount, correct?

To make matters even better I pay child support, because it goes to my earned income my child support would go up an extra $150 a month because I have to include the full $1,950 correct as income?

Sounds like my better option would be to sell which I would net around 60k if the above is true.

Thanks,
Patrick

 

[Zigner]

Yours is not a legal question. I would suggest that you consult with a financial assistance-type forum. Good luck.

 

[LdiJ]

What is the name of your state (only U.S. law)?

Colorado

Ok so I currently own a home and am considering renting it out.

My mortgage with PMI is $1,450 and I would be renting for $1,950. But after taking to family and friends it sounds like the full $1,950 goes to my earned income and I would have to pay taxes on the full amount, correct?

To make matters even better I pay child support, because it goes to my earned income my child support would go up an extra $150 a month because I have to include the full $1,950 correct as income?

Sounds like my better option would be to sell which I would net around 60k if the above is true.

Thanks,
Patrick

No, that is not how it works.

Yes, you report the entire amount of rental income that you received for the year on Schedule E of your tax return. However, you also deduct expenses on Schedule E which include mortgage interest, property taxes, homeowners insurance, repairs and maintenance, advertising, management fees if you use a management company, mileage if you manage the property yourself, and depreciation.

Generally, when someone has a rental property with a mortgage they actually end up with either very little profit, or an actual loss (due to depreciation). Therefore it does not increase their income for either tax or child support purposes, but rather it sometimes reduces your income for tax purposes.

 

[Patrick2013]

No, that is not how it works.

Yes, you report the entire amount of rental income that you received for the year on Schedule E of your tax return. However, you also deduct expenses on Schedule E which include mortgage interest, property taxes, homeowners insurance, repairs and maintenance, advertising, management fees if you use a management company, mileage if you manage the property yourself, and depreciation.

Generally, when someone has a rental property with a mortgage they actually end up with either very little profit, or an actual loss (due to depreciation). Therefore it does not increase their income for either tax or child support purposes, but rather it sometimes reduces your income for tax purposes.

Thank you!

 

[LdiJ]

Thank you!

You are welcome!

 

[Stephen1]

Let me lay this out a little differently just to ensure it is clear.

Not all of your payment to the mortgage company is deductible. Some of it is not deductible.
Your mortgage payment is composed of the loan repayment, the interest payment, and monies set aside in escrow for payment of the property insurance and property taxes. For federal tax purposes you may deduct on Schedule E the interest payment and the actual amounts of the property insurance and property taxes (not the amount paid into escrow but what the insurance company and the county/state were paid). The portion of the mortgage that is your loan repayment is NOT deductible.

I have heard people not make a distinction between the mortgage payment to the loan company and the elements that make up that payment. I didn't want you to think your deduction is bigger than it really is.