Author Topic: House Hacking Taxes  (Read 2085 times)

Man The Fire

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House Hacking Taxes
« on: September 20, 2017, 09:51:02 PM »
I currently own zero real estate and am 100% equities. I'm looking into buying a triplex or quadplex and then living in one unit myself and renting the others.

What sort of taxes are involved in this? I'm mostly curious about how to best handle the rental income. Ideally I'd put it in the stock market until I want to roll the profits into a second property.

How do I structure everything to minimize taxes? LLCs, self-directed IRAs, deviations from a 20% or 25% down, 30-year fixed mortgage, etc? Any good tricks I should be aware of?

farfromfire

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Re: House Hacking Taxes
« Reply #1 on: September 21, 2017, 01:14:02 AM »
ptf

tralfamadorian

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Re: House Hacking Taxes
« Reply #2 on: September 21, 2017, 08:14:43 AM »
What sort of taxes are involved in this? I'm mostly curious about how to best handle the rental income.

1/4 or 1/3 (quad vs tri) would be taxed as a primary residence.  The other 3/4 or 2/3, the rented portion, would be included in your Sch E.  So, if you replace the fridge in your unit, 0% deducted from taxes.  Replace the oven in one of the rental units, 100% deducted.  Make repairs to the parking area that everyone uses, 75%/67% deducted.  Set up a separate checking account for the rental portion of the property and write two checks for bills where both your unit and the rented units pay for their portion.  This will make tax time a piece of cake. 

Due to depreciation most rentals, particularly early on, show little to negative paper income so your taxes due to the property will likely be =<$0. 


How do I structure everything to minimize taxes? LLCs, self-directed IRAs, deviations from a 20% or 25% down, 30-year fixed mortgage, etc? Any good tricks I should be aware of?

In general it is difficult for new LLCs with non real estate investment experienced owners to obtain mortgages, even then they will be commercial mortgages with higher rates and shorter terms.  There are no tax advantages to a LLC.  You are going to want to get a 30yr fixed rate mortgage in your own name.   

Depending on your income and location Freddie Mac Home Possible may be a good product for you (http://www.freddiemac.com/singlefamily/factsheets/sell/pdf/home_possible_97_572.pdf).  Lower down payments with no PMI for owner occupied 2-4 unit residental.

You cannot live in a property owned by your or your spouse's SD IRA.  SDIRA owned property cannot be used for your personal benefit- ie: you can't live in them, use them as vacation properties, perform any work on them, allow family/friends/business associates to rent them at fair market value, etc.  Two more cons for SDIRAs- 1) you cannot take property depreciation on your Sch E (huge!- this is your major tax benefit to investment property) and 2) if things go poorly, you cannot add cash to the SDIRA to help support the property with losing the tax deferred status of your IRA.  Personally I consider #2 to be a tremendous risk that is not discussed widely by the SDIRA community.

Most of your post seems to revolve around taxes; the magic of real estate is taxes.  30yr fixed rate mortgages in your own name will get you there.

Cwadda

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Re: House Hacking Taxes
« Reply #3 on: September 21, 2017, 10:28:31 AM »
I made a thread about this a little while back because I had the same question.  I currently am house hacking a 4 family property.  Brb, going to try to find the thread.

Edit: here it is

https://forum.mrmoneymustache.com/real-estate-and-landlording/accounting-questions-for-owner-occupied-multi-family-property/msg1546345/#msg1546345