Q: I have a question and I can’t seem to find the answer on the Internet. Perhaps mine is not a common situation.
I own a single family home that I rented out. The house was too big for me. Now I live in an apartment that I pay rent for. Is the rent I pay in the apartment deductible against the rent I receive from my primary home?
A: The quick answer to your question is no. You are renting out your primary residence – which by the way is no longer a primary residence. It’s your investment property.
The rent you receive from the house can be offset by the expenses of owning the investment property.
For example , let’s assume your monthly mortgage interest payment on your investment property is $1,000 and your maintenance and upkeep and taxes are another $500 per month, the costs of the property are $1,500 per month. If you are receiving $2,000 in income per month from the property, you can offset all but $500. That’s $6,000 in income you’ll have to report to the IRS.
The amount you pay for your personal residence is completely separate and cannot be used as a deduction. For more details, including information about how depreciation fits into the investment property picture, please consult your tax preparer. Also, the IRS has several booklets to assist you with information. You can download this information at www.IRS.gov.
While on the one side you have income from the rents you receive, on the other side you’ll be deducting the mortgage payments on the rental property. For investment properties, you’ll have certain deductions that you can’t take if the property or home is your primary residence or otherwise is not considered an investment property. You may need a good accountant to help you sort through the deductions you may take and the income you must report.
Your article, “Rent deductible against mortgage?”, states that mortgage payments are deductible on investment properties. I believe that only the interest expense portion of mortgage payments (similar to residential mortgages) are deductible from income taxes. The principal portion accrues in the form of increased equity.
Yes, No???
Stan Bluestein
Stan, You are correct, the amount that can be offset is the interest portion of the mortgage payment. See the example above that assumes that the portion of the interest on the mortgage payment is $1,000. For those people that have interest only mortgage payments or early in their loan amortization schedule, their mortgage payment is all or mostly all comprised of interest. Thanks for your comment.