Answer

Hello again cindy,

If your income will be $53,000 per year, I am not certain that turning this condo in to a rental unit will really be much of an advantage to you.

Basically there are two reasons that people usually invest in rental properties. First is the obvious reason of wanting to have another source of income. Second, many taxpayers use this the write-offs available on a rental property to reduce their taxable income.

In your particular case, if you anticipate your rental income would be around $1,100 per month, you are still in a negative cash flow situation if it is costing you $2,000 a month to keep up the payments on the mortgage, insurance and taxes. And when looking at this as a possible tax write off, you would possibly have $12,000 a year to write off against your other income. In your particular income bracket, this would save you approximately $2,300 per year in federal tax and perhaps another $1,100 per year in CA state tax. So while you might be saving $4,400 in tax, at the same time you are still paying out $2,000 a month, with only $1,100 coming in for rent. So from my perspective, turning this in to a rental at this time does not seem to be financially sound.

If I were you, I would consider putting your condo on the market. It sounds like even if you spent the money for upgrades, you might not get much more than what you currently owe on it. That being the case, you may just want to list it as it is right now, and see what happens.

If it ends up that your condo goes through a foreclosure or short sale, now would be the time to do it. Normally when you have a property that goes through foreclosure or short sale, you are liable for the amount of the loan which was forgiven. However, due to the current mortgage crisis, Congress passed the Mortgage Forgiveness Relief Act which allows taxpayers who go through foreclosure or short sale in the years 2007 thru 2011 to exlude any forgiven loan from being taxable income. So you would end up just walking away from this without any further obligations.

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Thank you cindy, and let me know if you have more questions.