I am trying to better understand how this will affect my taxes and tax return. Does renting out a condo lead to a general rise in taxes owed and reduce your returns or in general is this more of a wash..? Especially if you can no longer deduct mortgage interest and your taxable income will also rise with the rental income. I understand that you can deduct depreciation but the land is worth far more than the property itself.
However, any losses than you can't deduct in a given year are considered passive activity losses than can be carried over to future tax years.
See Publication 527 for more information:
<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p527.pdf">https://www.irs.gov/pub/irs-pdf/p527.pdf</a>
If you are renting at a loss you aren't charging enough rent, and if the market won't bear the rent you want to charge you should probably just sell it, or leave it empty if you want to keep it as a second home and home it appreciates in value.
As rental property, you get to deduct not only mortgage interest and real estate taxes, you get to deduct insurance, repairs, utilities, condo assoc fees, your purchase price (thru depreciation) and any other expenses. And you get to deduct then directly from income. That is you get those deductions in addition to the standard deduction, not instead of.
Example: Married Home owner has $15,000 in itemized deductions. His standard deduction is $12,600. he only gets an additional $2400 in deductions by owning a home. But the condo landlord gets the $15,000 in addition to the $12,600.
One thing that you and Zbucklyo mentioned was that I am able to deduct utilities.. how so? I am planning to have my tenant open up their own account with the local water and power company.. how would I deduct the utilities in that situation or was the assumption that I would pay the utilities for this rental property and be reimbursed by the tenant?
[need to fix this, hang on a sec]
OK, lets try again.
Let's start with $1000 a month in taxes and interest. If you take that off your schedule C, your personal income tax rises by $3000/year.
So now, let's rent it for $2000 per month. Your deductible expenses might be $1200 per month (the same taxes and interest, plus hazard insurance and depreciation and any utilities you pay.) You pocket $800 per month, or $9600 per year. Your income tax on the $9600 is $2400.
When you account for the $2400 in new tax, plus the $3000 in lost schedule A deduction, you are still $4200 ahead. This is a problem?
"the land is worth far more than the property itself"
That makes no sense. If the fair market value of the condo is, let's say, $200,000, that includes the land or any land rights or shares of the common land that go with the condo. The land can't be worth more than $200,000 per shareholder if the overall sales price is only $200,000 (unless something very strange is going on, like the condo is full of asbestos making it more expensive to demo than it's worth.)