Question: TAX on 2nd Property, when there is no profit.

Hello!
I have some complicated tax question. I really hope that someone can assist me based on knowledge/previous experience.
I own a condo in Philadelphia, PA. I lived here for the past 3 years, and now I am relocating out of state, where I will be leasing an apartment. I had many interested tenants, however, I decided to rent to my relatives because they will take care of my property. I also provided them with very affordable pricing, since thy will not be asking me to fix/replace stuff if something happens; they will just do that themselves. Anyway, the $ that I will be receiving from them will not even cover my total expenses (mortgage, HOA fee, taxes, insurance). I will pay like $100 difference monthly. Question: can I not show this property on my annual return? Can I just file with my new out of state address, and do not reference my PA condo? I don't really want to pay taxes on the rent since I already cover the difference. Do you guys have any recommendations?
Also, I would like to leave my HO policy for them...I know that I am supposed to remove that, add landlords policy, and have them add renters policy, but they are my relatives, and I will be receiving mail there as well...Can I take this road? Are there any consequences? They will not really show the lease to anyone, except when they file annual rental rebate, and change an address with SSI/Welfare.... Any advise?

Thanks!

Mariya,

I work for an accounting firm as a professional tax preparer.

Why would you not want to declare your rental property when it is showing a loss? Also, your loss may be greater than $100 a month since there are more things you can deduct on rental property that you are not allowed to deduct on a home you are living in, such as depreciation, insurance, and HOA fees. Keep in mind, though, that it will cost you a little more ($50-$150 per year) if you hire a professional to prepare your tax return since more paperwork is involved. However, you can also deduct that additional cost on Schedule E (although the following year).

The money you receive for rent is income. Also, technically, any repairs or maintenance paid for or provided by your renters is also income. But, those costs can be written off as expenses, so in reality it is a wash.

Your deductions are anything paid by you in connection with the home: property taxes, mortgage interest, insurance, utilities, repairs, maintenance, association fees, depreciation. Be sure you take depreciation because when you sell that home the IRS will make you recapture it, whether you actually declare it or not, so you lose out if you don't take it.

If your schedule E show a loss (which, according to your question it will) that loss offsets your other income up to some limit. (Any difference can be carried over to future years). Thus, you can actually reduce your tax liability.

Any downside? Possibly. A continuing loss over a period of years could be an audit trigger. Discuss that possibility with your tax adviser who will be able to provide a better answer since he/she will have knowledge of actual figures.

Thanks everyone....Everything is clear now, and I will do the right thing