Renting out our house in FAI... law, tax info? (Fairbanks: renter, insurance)

[puff5655]

We just bought a house in Fairbanks but will be teaching in the bush for 3 more years. We found some trustworthy friends-of-friends to rent our place to.

We will write a rental agreement and get liability insurance, but is there anything else we need to do legally? How much of the rent we receive will be taken away at tax time? I assume we have to declare it as extra income?

Also, we originally applied for a second home mortgage because we thought we were going to leave it vacant. We are told that changing this to an investment property mortgage will cost us a whole lot more, so is it even worth having them pay us anything?

[AKStafford]

I think it would be prudent to speak to an attorney or tax preparer, rather than asking a random bunch of strangers with questionable stability and sanity on an internet forum.

I will say as a former renter, you'll want to advise your tenants to get their own renter's insurance. Your insurance will NOT cover their items in case of a incident.

[Dakster]

Ditto to what AKStafford said. Especially renter insurance part as most people I know don't get renters insurance. Except I don't think there is a question as to our instability and insanity...

It will count as income, but you get to deduct expenses from the income. Property taxes, insurance, and maintenance being some examples of potential applicable deductions. There are probably more out there too. A tax professional can help you determine what qualifies and what doesn't. It *may*, but not always, make sense to form a corporation to handle the tax burden and liability as well. You have s-corps, c-corps, and LLC's to look at.

There is a slight positive - since you will pay income tax on it (Federal) it means your social security benefits go up. Unless your current job maxes you out, meaning you make more than around $114k a year teaching.

There are so many variables, it's tough to guide you based on incomplete information as everyone's situation is different.

Just my .02.

FWIW, I am going through the research now as I contemplate being a landlord too.

[akck]

We rented out a home we owned decades ago, so the tax situation may have changed. In essence, the rental was a loss, even though the rent covered the mortgage payment, property taxes and insurance, plus a little more. The reason was because you could depreciate the value of the house each year. In addition, I believe one trip to "inspect" the house was deductible each year. The only drawback is that the cost basis is lowered by depreciation so your gain is bigger upon a sale. I think you can get around paying taxes on the gain if you move back into the house and live there for a certain number of years before selling. As mentioned, consult a tax expert for all the details on how it works.

[AADAD]

I would urge you to consider a property management company. I had renters in my Eagle River home.... excellent relationship for 2 years. When move out time came he painted with the wrong color requiring professionals to fix it. Did he pay? Nope. Just a word of advice.

Get a tax person. Your rental can be considered a loss and any trips there e.g. repair are a deduction.

[ysr_racer]

Originally Posted by AKStafford

I think it would be prudent to speak to an attorney or tax preparer, rather than asking a random bunch of strangers with questionable stability and sanity on an internet forum...

Are you trying to say "funky monkey 127" would steer me wrong

[Marty Van Diest]

Get an experienced property manager and talk to a cpa.

[Foodmuse]

Originally Posted by AADAD

I would urge you to consider a property management company. I had renters in my Eagle River home.... excellent relationship for 2 years. When move out time came he painted with the wrong color requiring professionals to fix it. Did he pay? Nope. Just a word of advice.

Get a tax person. Your rental can be considered a loss and any trips there e.g. repair are a deduction.

It was the law about ten years ago that if you went out of state you had to have a property manager. I think it's a good idea.