Tax Benefit Or Bad Idea?
I currently own a home in Riverside and Phoenix. My Phoenix house is a rental and Riverside is my Primary. The Phoenix home has a negative cash flow of about $200 a month which I have no doubt will be returned (ROI) when I sell the house. I am planning on renting my Riverside house. I should be able to produce a positive cash flow of about a $100.00 a month. Now I am negative each month approximately $100.00. Will I lose or gain any tax benefits renting out my primary residence which I have been there over two years? Will I qualify to purchase another home? Hope there is enough detail. Let me know if there is not.
Qualifying to purchase another home is a question your lender will have to answer for you.
There is no real tax benefit to operating a negative cash flow property. Yes, there are deductions and you have a larger passive loss allowance, but the negative cash flow rarely translates into an equal and offsetting tax savings. I say rarely because there probably is some breakeven point for a very low negative cash flow and a high depreciation basis where the tax benefit for your tax bracket is equal to the negative cash flow. But what happens when this equilibrium is upset with a large repair expense or a rental vacancy?
You have to decide whether the future appreciation you may realize is worth the cost of staying in a negative cash flow property, and more importantly, when do you sell to capture that appreciation.
Newkidintown2,
Thanks for the reply. I was not planning on buying my 1st investment property with a negative cash flow, but it worked out that way. Had to get out there and do it and learn. I do need to learn when to sell because I think the appreciation will be there. This has been a great learning experience though. I know alot more now and my next property will not have negative cash flow. Thanks Again.