From: "Paul Thomas" 
Newsgroups: misc.invest.real-estate misc.legal misc.taxes
Subject: Re: Real Estate Investment Tax Question
Date: Mon, 26 Nov 2007 21:35:11 -0500
Bytes: 2538


 wrote
> A friend asked me about the legal (tax) implications if he:
>
> 1) Receives a $1M loan to buy a rental property

No tax implications.



> 2) Uses the $1M to purchase a rental property, A


No tax implications




> 3) Uses A as 100%+ collateral for a $750K loan


No tax implications




> 4) Uses the $750K loan to purchase a second rental property, B


No tax implications



> 5) Uses B as 100%+ collateral for a $500K loan


No tax implications.





> He then rents out all of the properties for the same monthly payment


Rental income, reportable on the appropriate forms or schedules. For a 
sole-proprietor (individual) owner (not a partnership, LLC or corporation, 
you would use Schedule E to report the rental activity.



> as the loans used to purchase them plus any property taxes.


Rental expenses include, but are not limited to, property taxes, interest 
paid on the loan, and depreciation of the building cost (but not on the land 
cost).  He'll either have a profit or a loss from this rental activity. 
Rental losses may be limited due to the passive activity rules.




> The plan is to claim no profit and thus pay no tax on the rental
> properties.


I would ont want to sign off on a return with exactly $0 profit and exactly 
$0 loss.




-- 
Paul A. Thomas, CPA
Athens, Georgia