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Rakhi Vasavada
Rakhi Vasavada , Financial and Legal Consultant
Category: Finance
Satisfied Customers: 4419
Experience:  Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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I am wondering about tax structures on rental houses. I am

Resolved Question:

I am wondering about tax structures on rental houses. I am looking to start acquiring rental homes within the next 6 months and was wondering the best way to go about it. Is it better to just operate as an individual, or is there tax advantages of forming a business of some sort to have write offs? I am looking to buy 2-3 houses this year as rental homes and just looking for the best strategic tax avenue to pursue. Hope you can help...

Is it possible to write off a down payment as a business expense?
Submitted: 5 years ago.
Category: Finance
Expert:  Rakhi Vasavada replied 5 years ago.

Dear Friend,

 

It is more than certain that there are more tax benefits of forming a Corporation rather than going on a Individual basis, i.e. at proprietary level.

 

So, I would strongly advice you to go ahead forming a corporation. Since a corporation is a separate legal entity, it pays taxes separate and apart from its owners (at least in the typical C corporation). Owners of a corporation only pay taxes on corporate profits paid to them in the form of salaries, bonuses, and dividends. The corporation pays taxes, at the corporate rate, on any profits.

 

A further corporation tax benefit is that corporations pay federal income tax at a rate lower than that of most individuals for the first $75,000 of their profits - 15% of the first $50,000 of profit and 25% of the next $25,000. Professional corporations are charged a flat 35% tax rate. All allowable corporate deductions are treated as business deductions, making the determination of adjusted gross income, which is so essential for individual taxpayers, of little relevance to the corporation. Corporate taxable income is computed simply by subtracting from gross income all allowable deductions and losses. Individuals, on the other hand, have to consider itemized deductions or the standard deduction.

 

You may also refer to http://www.webpronews.com/topnews/2004/05/05/tax-benefits-of-incorporating for having a brief idea of all the tax benefits of forming a corporation.

 

So, in a nutshell, you must consider operate in a corporate form rather than going on on individual proprietor basis.

 

I hope this helps...

Warm Regards,

 

Customer: replied 5 years ago.
Thanks for the response, so would you advise a C-corp or an S-corp?
Expert:  Rakhi Vasavada replied 5 years ago.

Dear Friend,

 

I would suggest you to go for S Corp. This is given some tax benefits and you will be able to better understand if you refer http://www.themoneyalert.com/Corp-Entity-Table.html

 

I hope this helps...

Warm Regards,

Customer: replied 5 years ago.
Is there abything I can do to get a tax break on the upfront 20% down payment I'll pay? Let's say it costs 20k for the first house... Is there anyway I can write that off?

Thanks. Sorry for not responding / accepting earlier I went to sleep!
Expert:  Rakhi Vasavada replied 5 years ago.

Dear Friend,

 

No.. You cannot write off the entire down payment. You can only write off to the interest paid on the mortgage and this would be reported by your mortgage lender on form 1098.

 

I hope this helps...

Warm Regards,

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