From: rdyreng@logdis1.oo.aflc.af.mil (Russell I. Dyreng;OO-ALC/LILEE)
Newsgroups: misc.taxes
Subject: Re: Income from renting a primary residence
Date: Thu, 30 Jul 92 16:05:02 -0700
Organization: Fedtax-L<==>Misc.Taxes Gateway
X-Gateway-Source-Info: Mailing List

In your message of 30 Jul 1992 at 1533 MDT, you write:
>
> Suppose I rent an apartment as my primary residence and I want to sublet it.
>
> CASE 1:
>       My rent is $1500 and I charge a subtenant $1500 (so I dont
>       receive anything from subletting).
>       Is my "income" taxable? (Well, I hope, not)
>
> CASE 2:
>       My rent is $1500 and I sublet an apartment fully furnished,
>       so I can charge 10% more. Subtenant pays $1650.
>       Is any of my income taxable?
>
> Suppose I own a co-op as my primary residence and I rent it.
>
>       My mortgage payment is $2000, interest part of it is $1800
>       Maintenace $700. Tenant pays $1600.
>       Is anything taxable?
>
> Thank you.
>
> --Eugene.
>
Let me have a stab at this.
CASE 1:  You wouldn't have any taxable income in this case.  You are
taxed on the amount of income that exceeds expenses.  You have an
income of $1500 per month.  You have expenses of $1500 per month.  In
this case net income equals $0.00.  Therefore you pay no taxes on that
income.

CASE 2:  The answer here is a very definite maybe.  What you have here
is a monthly gross income of $1650 and monthly rental expenses of
$1500, for a net of $150 per month.  Now with the furniture in the
picture you have another variable.  Are you renting the furniture?  If
so this is another deductible expense, and hence would subtract the
monthly furniture rental from the $150 per month that you were
clearing from the rent of the apartment.

Perhaps you own the furniture.  In this case you are able to
depreciate the value of the furniture over some time period and deduct
that amount from your income for tax purposes.  It is not uncommon for
net income minus depreciation to come out as a negative number.  This
leads to a case where the losses from this business enterprise will
help shelter any other income which you may have.

If you just bought the furniture on credit you would also be able to
deduct the interest paid on the loan as a business expense, as well as
depreciating its value over some period of time.

And finally the co-op.  I am not familiar with the term co-op, because
it is not used out in this part of the country.  I am assuming from
the name that it is some sort of a multi-familiy dwelling.  If this is
the case and you live in one part and rent out the other, you claim
the rent you receive as income.  I will for the sake of convenience
assume that this is a two family dwelling.  In this case you would
claim half of the interest payed on the mortgage as you would normally
claim interest on a mortgage.  The other (renter's) half of the
interest would be figured as a business expense.  Also counting as
business expenses would be half of the property taxes, insurance, any
common utility bills, cost of upkeep for common areas, cost of tools
bought for use in both units.  On top of that you can depreciate that
part of the dwelling which is used for rental purposes.

Another nice feature is that all of these things show up on your form
1040 as *adjustments* to income, not as deductions.  By showing up as
adjustments, they effectively increase the amount of money that you
can contribute to your IRA (if your income is over the cutoff point
for deductibility), and can allow you to claim more medical and
miscellaneous deductions than if you were to include these as
deductions.

Does this answer your questions?

Russ
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Newsgroups: misc.taxes