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Comment by gigatexal | Hacker News Reader

Buy one cheap and rent it. That's my plan anyway. Already have one. Our current one will be our second. And I've already begun eyeing the third. But do your homework and never pay more than it's worth. So yes. Buy one but only as an investment because it's a huge money pit regardless but at least when renting it you can write off a lot of it on your taxes and others are building the equity in the home for you.

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>>you can write off a lot of it on your taxes

Can you explain this please? Excuse my ignorance of the US tax system.

This sounds like a pretty shitty thing for the government to allow, giving existing home-owners a huge advantage to build up property portfolios over people not yet orable to get on the ladder. (similar to negative gearing in Australia where I live)

Interest on a mortgage is tax deductible in the USA. According to Wikipedia, in 1913 "the reason for the deduction was that in a nation of small proprietors, it was more difficult to separate business and personal expenses, and so it was simpler to just allow deduction of all interest" https://en.wikipedia.org/wiki/Home_mortgage_interest_deducti...

It is insane, and yes you can "expense" mortgage interest against your taxes, and in the case of a rental, a portion of everything else too. Incentivizes owning houses.

(Again excuse any ignorance of the tax laws in the US)

In a fair world, this would only be allowed on the first buy-to-let property. Anything above that is just not in the interest of society in general, especially in cities like SF and Sydney that are running out of space to and/or NIMBY behaviour.

Rental properties are essentially just treated like businesses. You invest in a capital asset and take depreciation on it. You pay taxes on earnings, which means you can deduct business expenses from revenue.

The detailed reality is a bit more complicated of course (there are rules specific to real estate) but that's the essence.

You can write 100% of the interest on your primary or secondary residence in the US. You can not write off the interest on a house that is strictly an income property.

http://homeguides.sfgate.com/irs-rules-mortgage-interest-ded...

The intention is the incentivize people to own their own home, it is not to incentivize them to build up property portfolios. Indeed that would be perverse.

I'm sure you can show a loss on an investment with real estate just like you can with any investment but I think continuing to buy subsequent houses and showing losses on all of them as part of your personal tax returns might raise some flags.

> You can not write off the interest on a house that is strictly an income property.

That is not correct. The article you posted seems to imply it, but it is absolutely not true.

Pure rental property is treated as a business property, and mortgage interest on business properties is an expense that is deducted from rental income before determining tax liability. You can even carry a net loss over to your personal return (subject to some limits).

Details in IRS pub527: https://www.irs.gov/publications/p527/ch01.html

Oh sorry that sentence was meant to be "you can not write off 100% of the interest that is an income property."

For instance if you have bought a property as a pure investment property and the total mortgage + interest is being covered by the tenants monthly rent. You can not then write off that interest at 100% since you are not actually incurring that interest payment yourself correct?

Incorrect. Interest expense is a line item that is deducted from the company's tax burden. It's the same with a rental regardless if everything is being covered.

>"Incorrect. Interest expense is a line item that is deducted from the company's tax burden."

We weren't discussing a company though, we were discussing one's personal income tax filing.

100% of mortgage interest on personally-owned rental properties is deductible.

Mortgage interest is itemized just like any other cost incurred, e.g. maintenance, utilities, advertising, property taxes, etc.

The net profit/loss on the Schedule is then applied to your personal return. You might be limited in the size of loss you can apply, but that's an unrelated calculation.

You can write off the depreciation of the home on a 29.7 (?) year basis, mortgage interest, most improvements are fully written off if not amortized over time, but I think there's a limit of 25k or so in max real estate losses one can accrue in a tax year. Yes it's a huge advantage. Fair? I don't know. Probably a discussion for another thread.

> Buy one cheap

Can you elaborate ?

Most of you are well paid software developers? Or have been living under your means and saving some money? If you are willing to make improvements and "get your hands dirty" buying a foreclosed home (probably not too many left) or other homes on a short-sale is the way to go. I think as long as you can pay as close to or fair market value for a home (less would be ideal obviously but nobody is going to give away a home for cheap unless it's a bank that's just wanting to cut their losses) you'll be ok AND within your budget. Don't go bankrupt buying too much home to find ou there's a huge problem with it or you bought in an area where people won't want to rent it.

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