Mike C wrote:

- quote -

But then wasn't it also "lost" when 100% of it was allocated to
personal? The first 25% of the 100% was below the standard deduction,
but you didn't seem concerned about "losing" that.

Or, suppose you are allocating 100% to personal, but you buy the
property in October so you only have 25% of a normal year's interest to
deduct and end up with a standard deduction. Did you "lose" your
mortgage interest deduction, even though you deducted *more* than what
you paid?

If you want, you can choose to itemize instead of taking the standard
deduction, then you will get the "full effect" of the personal portion.
But it wouldn't make any sense to do so.

- quote -

Well, I already did the math for you. In the normal case, you will
*never* deduct an amount less than the total of your mortgage and
property tax, whether it is 100% personal, or part personal-part rental.
If you don't agree, why not provide an example? On the other hand, I
can show you examples where by allocating part of your interest to a
rental you are actually *better* off -- the opposite of what you are
trying to claim!

To bring this back to financial planning, it's analogous to other
situations where a "floor" amount kicks in. But it's interesting how
people's emotions color the objective situation.

Example 1: unemployment

For most wage earners, if their work-related earnings suddenly drop
below a certain level through no fault of their own (such as cutback in
hours, or complete job loss), they can receive unemployment compensation
from their state government. Once their wages rise back above the
threshold level, they no longer receive unemployment. Would you say
most full-time wage earners are "losing" their unemployment benefits?

Example 2: opportunity cost

Let's say you can put cash in a risk-free investment paying 3%. But you
choose to buy physical gold and hide it in your back yard instead.
Suppose the gold goes up 10%. Would you say you are "losing" the first
3% of that gain because you could have had it without taking a chance
and buying the gold?

Example 3: opportunity cost

Let's say you can put cash in a risk-free investment paying 3%. But you
choose to buy a house to live in instead. Suppose your equity in your
house goes down 5%. Would you say you are "losing" 5%, or 8%?

-Mark Bole

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On May 5, 6:51 pm, Mark Bole <ma...[at]pacbell.net> wrote:
- quote -

My point is that if my personal allocated % is below the standard
deduction, I still have to keep that interest and property tax
allocated to personal and it is lost since I am taking the standard
deduction.

Assuming I have no other personal Sched A deductions:
If, for example, I have 25% for personal use, and 25% of int+prop
taxes is less than standard deduction, then I am only getting to use
75% of the int+prop tax to get a deduction.

If, for example, I have 25% for personal use, and 25% of int+prop is
greater than the standard deduction, then it is a different story and
I am getting SOME of that deduction (because I would have gotten the
standard anyway).


========================================= MODERATOR'S COMMENT:
Please trim unnecessary text from the prior message when responding.

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Seth wrote:
....

- quote -

How are you going to get an unencumbered title for the one unit of a
multiplex to demonstrate that it, and it alone, is not mortgaged while
the other units are? Ain't a-gonna' happen methinks...

--

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Mike C wrote:
- quote -


Your concern is completely unfounded, it is the other way around -- you
are never worse off, and can often be better off, being able to allocate
part of your mortgage interest and property tax expense to a rental
activity. (Not taking into account Schedule A limitations, passive loss
limitations, AMT, etc -- those are beyond the scope of my reply).

This is because the standard deduction is a *floor* amount: it never
hurts you, it can only help. If this suddenly makes sense, you can stop
here, otherwise read on. You may even want to create a spreadsheet and
plug in some actual values if it still isn't clear.

Here's the math. Let:

* M&PT = total mortgage interest plus property tax

* Alloc = percent personal use (e.g. 25% for 1 unit out of 4, or 100%
for a owner-occupied personal residence)

* Other = all other Schedule A deductions (income tax, charity, etc)

* StdD = standard deduction ($5,450 for 2008)

Assume for simplicity no other deductions or expenses.

Your question becomes: does Alloc < 100% ever result in a total
deduction which is less than the one when Alloc = 100%, all other values
being held the same?

Here is your total deduction:

Max( StdD, (Alloc*M&PT + Other) ) + (1 - Alloc)*M&PT

The first term, Max(...), represents Schedule A, the second term
represents Schedule E.

Distributing second term within the Max() function,

= Max( StdD + (1 - Alloc)*M&PT,
(Alloc*M&PT + Other) + (1 - Alloc)*M&PT )

Further simplifying,

= Max( StdD + (1 - Alloc)*M&PT,
Other + M&PT )

Now, if if Alloc = 100%, this becomes Max(StdD, Other+M&PT), which is
the typical Schedule A-only situation. As soon as you drop Alloc below
100%, the first term in Max(...) can only get larger, and the second
term remains unchanged, so the result can only be the same or larger.

-Mark Bole




--
Mark Bole

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"Seth" <sethb[at]panix.com> wrote in message
news:fvnmar$1js$1[at]reader2.panix.com...
- quote -

You don't have such a choice available to you. What makes you think that
you do?

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Seth wrote:
- quote -

With separate properties, each with a dedicated use, there is no need to
allocate anything. But a single property with mixed use requires
allocation. You are using the word "choosing" to mean "allocate", so
let's just stick with "allocate".

Allocation for tax purposes between business and personal use of a
building is usually based on square footage, or number of rooms or units.

But you are trying to "allocate" between business and personal use based
on ... business and personal use! This is not a meaningful allocation
for tax purposes, and I doubt anyone would find it reasonable in a tax
return.

-Mark Bole

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In article <1e5e9032-0a91-45c9-9a3e-0e6cb5ad64e9[at]f63g2000hsf.googlegroups.com> ,
Mike C <michaeljc70[at]hotmail.com> wrote:
- quote -

I'm allocating 1/6 of the cost to each of the six identical units.
I'm choosing to pay for my home with cash, and borrow money to buy the
rental units.

Seth

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On May 4, 4:54 pm, se...[at]panix.com (Seth) wrote:
- quote -

That is the question. Though I have a degree in accounting, I am rusty
as I no longer work in accounting. My guess it there is no way you
can make that election. Why would the IRS possibly allow that? You
are buying one entity, and to allocate expense in that way would not
be allowed.

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In article <4c0e7438-b7ca-4a14-a131-c8b740efd46e[at]l64g2000hse.googlegroups.com> ,
Mike C <michaeljc70[at]hotmail.com> wrote:
- quote -

The property taxes are clarly for the entire building.

If it were purchased with a 100% mortgage, then the mortgage applies
to the entire building.

But suppose he puts 20% down, and lives in one of the six units. Can
he claim the 16.67% for his unit was paid in cash, and the 83.33% for
the other units was 3.33% cash and 80% mortgage?

Seth

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"removeps-groups[at]yahoo.com" <removeps-groups[at]yahoo.com> wrote:
- quote -

If that's the way he sets it up, those are the rules he has to comply
with.

- quote -

It can be done on an accounting basis alone. If the place will cost
$200,000 and he will use 25% as his personal residence, he could pay
25% down. That would represent payment for his personal portion, and
the rest could be applied to the business portion.

Stu

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On
<I don't know if you can buy the part you live in for cash, and apply
the full mortgage to the rental part.

I am sure you can't do that. That is like saying I am only going to
apply the property taxes and expenses to the rental units.

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On Apr 30, 7:43 pm, se...[at]panix.com (Seth) wrote:

- quote -

Is this really required?

- quote -

This sounds like a good idea, but don't know if they allow it. In a
TIC you buy a fraction of the building (say 1/4), so maybe it is
doable, but there may be local laws to look at.

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In article <c22c8ee0-068c-4ecc-ad37-8d2115d98a36[at]i76g2000hsf.googlegroups.com> ,
Mike C <michaeljc70[at]hotmail.com> wrote:

- quote -

But then you have to report your own rent as income, and pay tax on it
(or at least on the part that exceeds the property tax).

I don't know if you can buy the part you live in for cash, and apply
the full mortgage to the rental part.

Seth

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On Apr 30, 2:34 pm, Mike C <michaelj...[at]hotmail.com> wrote:

- quote -

The personal part of property taxes and mortgage interest goes on on
Schedule A. The business part of these items goes on Schedule E which
you deduct against your rental income. So if your Schedule A
deductions (for just 1 of the 4 units) are smaller than the standard
deduction, you're only losing part of the total property taxes and
mortgage interest. But then again, you'll get the 250K/500K exemption
when you sell your flat (but just on the unit you own if I'm not
mistaken).

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I am thinking of buying 2-4 flat that i would live in. Now I receive a
substantial itemized deduction for my interest and property taxes on
my single family home (which would be sold to buy the rental
property). My concern is that I will have to apportion the property
taxes and interest between the business (rental property) and my
personal deductions, rendering them useless because they will be below
the standard deduction.

My question is, is there any way around this? For example, using a
partnership or corp to buy the property and then paying fair market
rent to it for my unit. At least then the deduction would be had by
the rental rather than lost.

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