Second Property Question

[ferissp]

We are a household of doctors and domestic engineers...not accountants. All this escapes us completely so please use small words and go slowly

We were on vacation recently and realized that our favorite hotel is actually a condo building... you can buy a unit (not a timeshare) and the hotel will handle the rental/maid service portion. You are responsible for taxes, electric, condo fees, etc.

The unit will cost around $40k a year in mortgage, condo fees, etc. The unit makes around $50k per year in income of which the management company/hotel takes around $17,500 which includes booking and maid service. This simply doesn't make it cost effective unless we could deduct the $17,500 as active losses against our normal salary from our jobs. I can't seem to figure out what is passive and what is active- the key term in determining if we can take the deduction from our salary or just the profits from the unit.

I currently stay at home with the kids so I would be handling repairs and maintenance and could consider it a full time job- although I believe it would not require 40 hours a week (or even 40 hours per month).
Our AGI is over $300k
The unit would be in SC, we live in NC
We would opt to use it personally less than 10% of the rented time or 14 days a year.

Thanks for your help!

 

[The Finance Writer]

Rental activity is always passive income or loss. In addition, you are not allowed to deduct any loss on the condo when using a management company instead of having an active role. Plus, your AGI is too high for any limited passive loss deduction even if you were actively participating in the activity.

You can deduct the real estate taxes as an itemized deduction. However, that probably doesn't deliver any income tax benefit because this is a preference item under the Alternative Minimum Tax, which is likely imposed on you due to AGI.