Taxes and other financial implications of renting my condo in Chicago
Hi Terry! I’m thinking of renting out my condo in Chicago. I was wondering about the tax implications or any other type of fees I would have to pay associate with renting. I definitely will be able to rent it for more than my monthly mortgage by about at least $400 or $500. Thank you!
Terry Says: OK, there are several issues involved here — and you definitely need the advice of a tax professional. But here’s what to consider. Let’s assume the condo association will let you rent, but for how long? That’s the first question. Then there’s the issue of capital gains taxes vs rental income. If you have a sizeable capital gain on the condo, as an individual you can exclude up to $250,000 of gains on a PERSONAL RESIDENCE when you sell the property. That could be important, depending on your plans. But if you have not lived there as your personal residence, any gains on sale are treated as taxable. But you may be able to depreciate the property, impacting your current taxes. It can get complicated; read this link to get an idea of the tax issues!
If you rent out the property, you will have to declare the income — and that could impact your tax bracket, and your qualification for certain federal programs, as well as the cost of Medicare Part B if your income increases enough. Those are more things to think about. Then consider the cost of insurance — and of requiring the tenant to purchase renter’s insurance — though you will still have to pay insurance on everything the condo doesn’t cover. And finally, there’s the wear and tear that is potentially involved. If you earn the rental money but have to spend a lot to redecorate, put in new carpet etc, when you want to re-rent, or return, are you really ahead in the long run?
There are financial, tax, and personal issues (where will you live, will you have storage costs for your furniture, etc) all involved in this decision. You need a professional to give you specific advice, based on your own situation.
