Re: Income reduction from rental property

From: Mike Broadhurst <specpub@annex.com>
Subject: Re: Income reduction from rental property
Date: Mon, 10 Aug 1998 09:54:29 -0700

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In a recent discussion of landlord tax breaks, ldavis@ix.netcom.com (Lynn R
Davis) said:

>>MOST people CAN, if they do it right, deduct rental losses against other
income.

First, they must "actively manage" the property themselves.  For example,
they must select the renters, and carry out other landlord
responsibilities. <<

Now I ask:
Exactly how active is "active?" I own a property, currently tied up in an
unlawful detainer action, that I've actively managed -- up to this point --
as you've described. However, I've been considering hiring a management
firm to handle the property once the eviction is complete. 

The company offers varying degrees of management. Under one option, they
will advertise and screen prospective tenants and negotiate the lease. I,
however, retain full responsibility for choosing the tenant and setting the
rent, and dealing with the tenants for the duration of the lease.

Under another option, the management firm handles everything -- from
screening, leasing, handling maintenance problems, to collecting rents and
paying the mortgage, homeowners association, etc. -- and just send to me
any money that's left over (there won't be any). They'll even guarantee to
pay the monthly amount due me, even if the tenant defaults. 

I'd love to be rid of the headache of leasing and collecting rents. But I
don't want to forego the ability to deduct my rental losses this year (and
they will be considerable) against income. If I contract with a management
firm on Sept. 1, do lose my deductions even though I managed the property
on a solo basis for nearly three-quarters of the year? How about if I just
have the firm screen tenants and negotiate the lease? Or, am I small-time
enough to take the full-service management arrangement (which will likely
result in a small negative cash flow situation) and still claim that I'm
actively involved in managing the property? 

Thanks, in advance, for any advice!
Mike Broadhurst





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