Hi All, I live in the state of MN. My question is when the end of year comes and the the intrest that is paid on the loan or CD is claimed. Is that considered Income or profit? Will that bring up my income?
Quote: My question is when the end of year comes and the the intrest that is paid on the loan or CD is claimed. Is that considered Income or profit? Will that bring up my income?
sigurd33,
I assume that your reference to "CD" is a Contract For Deed and not a Certificate of Deposit. I also assume that you do not have a business entity established for buying or selling real estate, but instead are conducting all transactions in your own name.
Mortgage interest you pay on your primary residence is deductable on Schedule A, but only if you itemize your deductions.
Mortgage interest you pay on your investment rental property is shown as an expense on Schedule E. Mortgage interest paid on other (non-rental) investment property is deducted on Schedule A, but only if you itemize.
If however, you are selling your property with an installment sale method (such as Contract for Deed), you report the interest you receive as income on Schedule B.
Did this answer your question? If not, please give a specific example that we can address in detail.
20th December, 2002
true I have not opened a buisness entity. So I am doing as personal investing. Would it be better to be under buisness name? This also is my first transaction.
So being under personal investing and to be more to the point. The intrest that I claim paid at the end of the year. Is it considered income? and will I be taxed on it? Thanks for the reply so quickly
Interest you pay is a deduction, not income. Interest you receive is income.
Can't answer the business entity question. I have been investing in long term rental property for many years in my own name, without the shield of a business entity.
The type of business entity that would be best for you can only be determined after a thorough understanding of your investment approach, your current financial posture, and your future investment goals. The best people to assist you in answering this question would be your personal tax advisor and your CPA. I am neither.
I understand that you may just be starting out, and these people may not be on your team yet. If you have a low or zero net worth, you may decide to just start investing without the liability protection of a business entity, then explore this question later when you have more personal wealth at risk in the event of a lawsuit.
Hello Sigurd33, I had some of the same questions, I went to the IRS website and looked up the answers to my questions. The website gives examples how to figure your net from rental income. You take your gross rental receipts, minus the interest and expenses (cleaning, management, advertistment, points, milage ect), next figure your deperication, this is how you come up with your net income from rental property. This is done on sked E. If this does not answer your question then check out the IRS website.
10th January, 2003
Hey thanks to everyone that replied. Every little bit is helpful.. I am at the point of post talking to the guy that is selling the 2 propertys. He has a total of 92 units and has done contract for deed work before. I did explain and try to offer him a lease option for them but he has not heard of the lease option before nor does he have the trust. He has a feeling that someone buying like that is going to get in and take 3-4 maybe 6 mos worth of mortgage abd run. How do you over come something like that? He wants to sell but isnt seeing the gift horse in the mouth.
To my understanding on the protection side... Having property in your own name is very dangerous in this bizz.... However, I know of many wealthy real estate investors that do it. Does that make them right, I don't think so based on what I have read. Myself, I don't and will never, I have worked to hard for it. If you don't think it can happen to you refer this sights poll on lawsuits...a couple guys have lost alot or everything. On the tax side I believe LLC is the way to go for us passive income landlords. Flippers are told to incorperate for the capital gain issue. Don't take any of this to the bank, this is just my opinion on the research I have done. But it does raise some questions you might dig into.
gtrzndrums
Quote: My question is when the end of year comes and the the intrest that is paid on the loan or CD is claimed. Is that considered Income or profit? Will that bring up my income?
sigurd33,
I assume that your reference to "CD" is a Contract For Deed and not a Certificate of Deposit. I also assume that you do not have a business entity established for buying or selling real estate, but instead are conducting all transactions in your own name.
Mortgage interest you pay on your primary residence is deductable on Schedule A, but only if you itemize your deductions.
Mortgage interest you pay on your investment rental property is shown as an expense on Schedule E. Mortgage interest paid on other (non-rental) investment property is deducted on Schedule A, but only if you itemize.
If however, you are selling your property with an installment sale method (such as Contract for Deed), you report the interest you receive as income on Schedule B.
Did this answer your question? If not, please give a specific example that we can address in detail.
true I have not opened a buisness entity. So I am doing as personal investing. Would it be better to be under buisness name? This also is my first transaction.
So being under personal investing and to be more to the point. The intrest that I claim paid at the end of the year. Is it considered income? and will I be taxed on it? Thanks for the reply so quickly
Interest you pay is a deduction, not income. Interest you receive is income.
Can't answer the business entity question. I have been investing in long term rental property for many years in my own name, without the shield of a business entity.
The type of business entity that would be best for you can only be determined after a thorough understanding of your investment approach, your current financial posture, and your future investment goals. The best people to assist you in answering this question would be your personal tax advisor and your CPA. I am neither.
I understand that you may just be starting out, and these people may not be on your team yet. If you have a low or zero net worth, you may decide to just start investing without the liability protection of a business entity, then explore this question later when you have more personal wealth at risk in the event of a lawsuit.
[ Edited by DaveT on Date 12/21/2002 ]
Hello Sigurd33, I had some of the same questions, I went to the IRS website and looked up the answers to my questions. The website gives examples how to figure your net from rental income. You take your gross rental receipts, minus the interest and expenses (cleaning, management, advertistment, points, milage ect), next figure your deperication, this is how you come up with your net income from rental property. This is done on sked E. If this does not answer your question then check out the IRS website.
Hey thanks to everyone that replied. Every little bit is helpful.. I am at the point of post talking to the guy that is selling the 2 propertys. He has a total of 92 units and has done contract for deed work before. I did explain and try to offer him a lease option for them but he has not heard of the lease option before nor does he have the trust. He has a feeling that someone buying like that is going to get in and take 3-4 maybe 6 mos worth of mortgage abd run. How do you over come something like that? He wants to sell but isnt seeing the gift horse in the mouth.
To my understanding on the protection side... Having property in your own name is very dangerous in this bizz.... However, I know of many wealthy real estate investors that do it. Does that make them right, I don't think so based on what I have read. Myself, I don't and will never, I have worked to hard for it. If you don't think it can happen to you refer this sights poll on lawsuits...a couple guys have lost alot or everything. On the tax side I believe LLC is the way to go for us passive income landlords. Flippers are told to incorperate for the capital gain issue. Don't take any of this to the bank, this is just my opinion on the research I have done. But it does raise some questions you might dig into.
gtrzndrums