Have a Tax Question? Ask a Tax Expert
Hello,Thank you for using justanswer. I can assist you with your questions today. If you rent your current home and actively manage the rental and property then you can deduct up to 25K annually (assuming you file as married filing jointly). Note that if your adjusted gross income exceeds 100K then the 25K deduction is limited and foregone when your income exceeds 150K. See link here for more information (Limits on Rental Losses).
For tax purposes does it matter? - No it does not matter for tax purposes whether you put a decent down payment on the new house or leave the equity in our current house. It would make more sense from a tax deduction standpoint though to leave the equity in the home and put the minimal down payment on the new home. This way you get a higher mortgage interest deduction on the new home and also get interest expense on Schedule E of the old home as a rental. (note comments above, the rental real estate deduction is limited to 25K)
What other considerations do I need to take into place when renting in regards XXXXX XXXXX? - I think I explained the most of it above. If you do not actively manage the rental then you will not get to take any losses annually from the rental property as it would be considered a passive activity. You will however have to report income. Once you sell the property any disallowed losses from prior years will be released when you either sell the property or convert it back to personal use.
Let me know if you have any further questions on this.
Thank you please elaborate on "actively manage" as we would not hire a property manager and would manage the house ourselves if something should break, picking up rent, etc. Is this "actively managing."
Last question, my wife has a $10k in her 401k and no longer works. Would it be a horriable idea to use this $10k as part of the down payment given we would incur interest over 30yrs. I have a 401k so more of a tax question then retirement question. Thanks again.