Taxes and home ownership


E

Erick T

I'm considering buying a condo for investment, and renting
it out. I currently live in an apartment, and will probably
continue to do so for some time. As I understand it, I can't
write off the interest paid on the mortgage for the condo if
I'm not living there. Is that correct?

At some point, I will buy a house as my primary residence,
and I want to make sure that I'm not going to lose any tax
benefits if I buy an investment property now. Will I still
be able to deduct the mortgage interest on the mortgage on
my primary residence?

Also, I have a 401k account, and from what I understand, I
can use some amount of that for a down payment on a first
house without penalty (or taxes?). If I buy an investment
property now, would I lose the ability to use my 401k
without penalty on a down payment?

Thank you,
Erick
 
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J

John H. Fisher

I'm considering buying a condo for investment, and renting
it out. I currently live in an apartment, and will probably
continue to do so for some time. As I understand it, I can't
write off the interest paid on the mortgage for the condo if
I'm not living there. Is that correct?

At some point, I will buy a house as my primary residence,
and I want to make sure that I'm not going to lose any tax
benefits if I buy an investment property now. Will I still
be able to deduct the mortgage interest on the mortgage on
my primary residence?
You will be able to deduct ALLyour expenses related to the
condo. Taxes, interest, insurance, advertising, repairs,
supplie, utilities, depreciation, etc.
Also, I have a 401k account, and from what I understand, I
can use some amount of that for a down payment on a first
house without penalty (or taxes?). If I buy an investment
property now, would I lose the ability to use my 401k
without penalty on a down payment?
In any case, you may not take money from your 401K account,
without penalty, for the first time purchase of a home. You
may, however, do so if the money were to come from your IRA.

"Jack" - John H. Fisher - (e-mail address removed)
Philadelphia, Pa - Atlantic City, NJ - West Wildwood, NJ
My Newsgroups & Boards at: http://members.aol.com/TaxService/index.html

Where Ignorance is bliss, 'tis folly to be wise!=:)
 
D

Dave Woods, EA

Erick T said:
I'm considering buying a condo for investment, and renting
it out. I currently live in an apartment, and will probably
continue to do so for some time. As I understand it, I can't
write off the interest paid on the mortgage for the condo if
I'm not living there. Is that correct?
Not necessarily.
At some point, I will buy a house as my primary residence,
and I want to make sure that I'm not going to lose any tax
benefits if I buy an investment property now. Will I still
be able to deduct the mortgage interest on the mortgage on
my primary residence?

Also, I have a 401k account, and from what I understand, I
can use some amount of that for a down payment on a first
house without penalty (or taxes?). If I buy an investment
property now, would I lose the ability to use my 401k
without penalty on a down payment?
There is no first time home buyer exception to an early
401(k) distribution.

--
David M. Woods, EA
Boston, MA 02109

Postings here are general information only and not to be
relied upon as advice.
 
B

Bill

Erick posted:
I'm considering buying a condo for investment,
and renting it out. I currently live in an
apartment, and will probably continue to do so
for some time. As I understand it, I can't write
off the interest paid on the mortgage for the
condo if I'm not living there. Is that correct?
No, it is not correct.

Since the rented condo will be a business you are operating,
you will be filing Schedule E -- and one of the costs
itemized will be loan interest. [But you won't be able to
enter the interest on a Schedule A, and that's what you may
have read about.]

You should definitely obtain and read Pub 527, Residential
Rental Property, for a better understanding of applicable
tax law and regs.
At some point, I will buy a house as my
primary residence, and I want to make sure
that I'm not going to lose any tax benefits if I
buy an investment property now. Will I still be
able to deduct the mortgage interest on the
mortgage on my primary residence?
The deductability of mortgage interest on your primary
residence will not be lost because of your investment
property.
Also, I have a 401k account, and from what I
understand, I can use some amount of that for
a down payment on a first house without
penalty (or taxes?).
Basically, that is correct, although you should check the
specific 401k rules for your company.
If I buy an investment property now, would I
lose the ability to use my 401k without penalty
on a down payment?
No, your separate purchase of an investment property should
not affect your 401k account or any rights/options available
thereunder.

Bill
 
H

Herb Smith

I'm considering buying a condo for investment, and renting
it out. I currently live in an apartment, and will probably
continue to do so for some time. As I understand it, I can't
write off the interest paid on the mortgage for the condo if
I'm not living there. Is that correct?
Not correct, the interest is deductible on your Schedule E
as a rental activity expense.
At some point, I will buy a house as my primary residence,
and I want to make sure that I'm not going to lose any tax
benefits if I buy an investment property now. Will I still
be able to deduct the mortgage interest on the mortgage on
my primary residence?
Yes

Also, I have a 401k account, and from what I understand, I
can use some amount of that for a down payment on a first
house without penalty (or taxes?). If I buy an investment
property now, would I lose the ability to use my 401k
without penalty on a down payment?
You understand wrong. Withdrawals from your 401k plan (if
still working) are limited to "hardships" and are fully
taxable. If you are under age 59-1/2 there is a 10% early
withdrawal penalty. There is NO "first time homebuyer"
exception for 401k withdrawals. That is only for IRA
withdrawals. In addition, you cannot "rollover" a hardship
withdrawal to a traditional IRA, and then withdraw from the
IRA.
 
E

Erick T

Thanks to everyone for your great help! Your responses
cleared up all my questions. :)

Erick
 
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H

Herb Smith

Erick posted:
Basically, that is correct, although you should check the
specific 401k rules for your company.
Actually, that is NOT CORRECT. There is NO first-time
homebuyer exemption for 401k accounts, only for IRAs.
 
L

Linwood Fordham

Erick T said:
I'm considering buying a condo for investment, and renting
it out. I currently live in an apartment, and will probably
continue to do so for some time. As I understand it, I can't
write off the interest paid on the mortgage for the condo if
I'm not living there. Is that correct?
No, you are confusing the rules for itemizing with the rules
for rental property. You will report the income and all
expenses, including interest and depreciation on schedule E.
The net income or loss from the schedule E will then go to
your 1040.
At some point, I will buy a house as my primary residence,
and I want to make sure that I'm not going to lose any tax
benefits if I buy an investment property now. Will I still
be able to deduct the mortgage interest on the mortgage on
my primary residence?
Yes

Also, I have a 401k account, and from what I understand, I
can use some amount of that for a down payment on a first
house without penalty (or taxes?). If I buy an investment
property now, would I lose the ability to use my 401k
without penalty on a down payment?
That exception to the early distribution penalty is not
available with a 401k but is available with an IRA.

Linwood Fordham EA
 
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W

Wcm7315

Also, I have a 401k account, and from what I
Actually, that is NOT CORRECT. There is NO first-time
homebuyer exemption for 401k accounts, only for IRAs.
And it is never "without taxes." Only the penalty is excluded.
 

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