Rental Income Tax Question

Hi Jacob! Great question.

There are a log of nuances to your question, but here is some helpful info.

You should not buy a property, solely for tax purposes. That being said, if you are an active real estate professional in the IRS’s eyes or have a short-term rental, you may be able to use that to offset active income – the rules are tricky so you’ll want to work with a qualified tax professional here.

When you go to buy a property for yourself in the future, the other property may impact your ability to buy the next one, but if the property is income producing the impact may be positive. However, the “paper losses” from the rental property are likely from depreciation which is best described as a phantom loss and not a real loss (aka it’s not a real expenses, it’s a part of the tax code).

Again, it’s very nuanced. At the end of the day, if you are a business owner lenders require more scrutiny of your records for future lending opportunities (I say business owner, because it sounds like real estate might be your primary role). And during that process, they will request tax returns and make their own evaluation.

Long-story short, it depends. But it could help or hurt, depending on the actual property and the composition of your overall income, assets, and liabilities.

Hope that helps!

Anthony