I am trying to determine if I need the services of a real estate lawyer or an accountant as I determine whether to sell or rent my current home. My situation, and questions, are as follows:
My wife and a I are going to move from one area of Northern Virginia to another in order to be closer to our jobs and friends, and to enjoy the added conveniences. Our home is worth about $100k less than what we paid for it, and if our comps are accurate, we would be able to walk away without owing the mortgage company money (after real estate fees, taxes, etc). We are trying to figure out if we should rent or sell, and I believe the question really hinges on if we can write off losses in the rental against our income. Relevant financials and the options I believe I have are as follows. I'd appreciate any advice on my options, criticism, comments, etc., but most of all I can't figure out if I need an attorney or accountant to discover / analyze my options for the 2010 tax year. A reference in Northern VA (loudoun or fairfax) would be great, too.
I would want to rent the house out in order to sell it at some point down the road. The assumption is that in a few years, appreciation of the property and inflation would be greater than 3% per year, and we would sell. This would avoid converting the $100k paper loss to a real loss right now. I don't believe I'll ever recover the $100k, but to get a check for $30k in 3 years would be nice.
-Our gross income for 2010 will be in excess of $220k.
-The monthly payment on the house is $2770, with approximately $550 as principal, $1620 as interest, and rest escrow for taxes and insurance.
-A reasonable estimate for monthly rent is $1800 - $2000
-My 2010 tax return will show that a renter (my brother) rented a room in the house throughout the year
-My wife and I both work full time. We probably can't qualify as real estate professionals
Rent the house. File taxes 'married filing separately' with my wife claiming the rental income on her return. Her income is just over $100k, allowing almost the full $25k deduction. I would take the interest for new mortgage for the new house against my income (hopefully).
Questions for Option 1:
1a. Would I have to remove my name from the title of the rental house?
1b. How bad would filing separately affect our taxes?
1c. Will the mortgage company typically allow my name to come off the title?
1d. Is there any benefit to using an existing LLC (or setting up a new one) to manage any of this?
Sell the house. Claim losses against my income (to offset any capital gains + $3k/yr) for the difference between the value of the house when it started to rent (jan 09) and the value when it sold.
Questions for Option 2:
2a. How do I justify the value of the house in 2009 to calculate the loss?
2b. Assuming the anser to 2a. is an appraisal of the house, how do I get an appraisal as high as possible?
2c. Is having a portion of the house rented for 1 yr + good enough to satisfy the IRS?
Come up with a way (this is where an attorney or accountant would be helpful) rent the house out and deduct the losses and depreciation against our income without resorting to tax acrobatics.
Questions for Option 3:
3a. Is there any benefit to using an existing LLC (or setting up a new one) to accomplish any of this?
I really appreciate any suggestions or answers you can offer.