Rental Basics in Oakland>Question Details

Scarabic, Other/Just Looking in Emeryville, CA

I own a flat and am living in it. Thinking about renting it out. Would I need to declare the rent I collect as income? That would change my tax math.

Asked by Scarabic, Emeryville, CA Wed Oct 28, 2009

Don't want to sell my place now, but would like the freedom to move somewhere else and be a renter again. I think I could rent my place out for enough to cover the mortgage payments. But if I have to start declaring that rent as income it's going to balloon my taxes, isn't it? Right now I'm getting a sizable tax return each year due to the mortgage interest I pay. But if I have to cough up 35-40% of the rent I collect as income tax, I'm screwed. Will I have to do that?

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Larry Benedetto’s answer
most likely you would have to declare the income. But now you also change the property in such a way that there maybe new tax deducxtions for you. Also you should let oaklands rent board know. Also consider this if you want to get back in and the tenat is a good one, then oakland rental laws may make it more difficult for you. Check with your accontant, and lawyer is my advise.
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0 votes Thank Flag Link Fri May 6, 2011
Hi You should definitely consult a tax person who help advise you how your taxes would be impacted. Also, many HOAs will only allow a certain number of units as rentals. You will need to check witht them to find out if you are able to do so.

Your best bet is to consult your tax person and they can really put it in black in white to help you figure out how this will affect you.

Rose Nied, Alain Pinel Realtors, 510 530 7011
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0 votes Thank Flag Link Wed Mar 3, 2010
Rental income is taxable income, but there will be new off-setting expenses. In particular, you will be allowed to depreciate a part of the property which may entirely off set any taxable gross income you receive.

Jeff Woo, Esq.
Sedgwick, Detert, Moran & Arnold LLP
Complex Rental Property Group
0 votes Thank Flag Link Thu Feb 25, 2010
Dear Scarabic,

There are several things you can do to get to your answer:

1. Consult your tax advisor and determine what impact this will have on your bottom line. This advice is worth the cost of a consultation.

2. Consult the CC&R's to see what the restrictions you may have for renting out your property.

3. Consult a property management firm to see what rent you can get on your place as well as the cost to have it managed. (You may not want to manage it if you are moving out of the area, have no interest in taking this on, or are in a rent control city.)

Best of luck,

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0 votes Thank Flag Link Thu Feb 25, 2010
And don't forget about rent control in Oakland. You can see the regulations online - check Google for "Rent Adjustment Board - City of Oakland - Official City Website". You can join RHANAC to help you with your rental questions.
0 votes Thank Flag Link Mon Nov 2, 2009
And after you consult with your CPA, here are some of the things you should know, or think about:

1. Wil you indefinitely rent out your flat? If you don't live in it for 2 out of the last five years before you buy or sell another residence, then your flat may be considered as investment property and not as your primary residence

2. As such, should you try to sell if later, you may be subject to other taxes (if the property appreciated considerably, there are capital gains to contend with). HOWEVER, you may be able to defer those taxes if you buy a replacement property under the 1031 Exchange guidelines, Here's a good link to check out

3. If you generate enough income (declared net income less expenses of maintaining/managing the property) that warrants your keeping the property as a rental, this may be your stepping stone to investing more in the future

4. some point in time, you decide that you'd like to be a homeowner again, you can also go back and live in the property again. (Then after living in it for 2 out of 5 years, you can think of selling and getting another home).

There's a really good and easy-to-read book that you may want to get: David Bach's The Authomatic Millionaire Homeowner

Good luck!
0 votes Thank Flag Link Sun Nov 1, 2009
I am a real estate investor if there were not any advantage of owning X properties no one would invest .

Confer with CPA, when you own any property you receive annual tax benefits, property increases in value, tenant pays cover all your expenses, plus more based on current market value.

Many pro's and con's of owning properties

Good luck

National Featured Realtor and Consultant, Texas Mortgage Loan Officer, Credit Repair Lecturer
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0 votes Thank Flag Link Wed Oct 28, 2009
Hello Scarabic and thanks for your post.

Rental income would be reported as ordinary income on your tax returns. However, that income will be adjusted by expenses relating to maintaining the property, such as repairs, painting, and (something that is not currently tax deductible) homeowners association fees. You would also get depreciation (something that you don't currently get) on the home, which helps defray the cost of the property even more. The interest expense paid on the mortgage, which is currently reported as a Schedule A expense and is limited or reduced by your own AGI would become a dollar-for-dollar reduction against your rental income.

As Eric has already noted below only your tax or financial professional can give you advice on your personal financial situation, however, there are benefits to owning rental property and the rental income would be offset by expenses and would not be considered, in its entirety, supplemental income. Good luck!!

Grace Morioka, SRES, e-Pro (and Ex-Accountant)
Area Pro Realty
San Jose, CA
0 votes Thank Flag Link Wed Oct 28, 2009
First, consult with a tax attorney or an accountant, but since the rent would be income, yes you would have to pay taxes on it, but talk to a specialist about your situation.

Good Luck
0 votes Thank Flag Link Wed Oct 28, 2009
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