Talk to you tax advisor. Rentals are different everywhere. When we had a rental, I kept track of everything because we could not declare it as rental property unless we actually managed the property. But be aware of the amount of time you must keep the rental, and if and when you sell it the capital gains tax you might have to pay. Please, contact a CPA/tax advisor for your own protection. Another thing, ask them if you need to get a current value (appraisal) or when you sell it you will pay capital gains tax big times!!! I know from experience.

Quicken has a good program for keeping track of rentals.

I'll definitely talk to someone about tax treatment, especially with the resent changes to the homeowner exemption rules. Thanks for the tip on Quicken, I'll check that out.

Assuming that I have 70% equity and a rental agreement/deposit in place, how does the rental income get treated for qualifying for a mortgage? Does it just count as ordinary income?

I'm not sure what lenders are doing today. However, when I have qualified for a mortgage with rental income, I believe that they used 75% of the lease amount as income and included all of the PIT&I expenses. At no point did my equity % in the rental come into question. However, things may have changed.

We purchased a tri-plex recently. The income from the rental house we already had went in the minus column because the rent didn't quite cover the mortgage, but when we bought a 2nd triplex a month later, 100% of the profit went in the positive column, helping us to qualify for the mortgage. I was really quite amazed that it was so easy to get a loan. This was just this last September We had about 25% equity in each property.

James is talking about qqualifying for a new mortgage when you are keeping an existing home and will now be renting it out.

Offset means ... if the market rent will be $1000 a month, you can use 75% or $750 of that and then subtract the mortgage payment (PITI and any HOA fees)on that house. If the end figure is a negative figure, that will count as a debt. If the end figure is positive, they might use it as income.

In the end though, you will not have to qualify with 2 full mortgage payments.

As Pam had indicated the bank will use 75% of the rental income plus 9% average vacancy to qualify for a mortgage. Turbotax does a wonderful job with Schedule E, Rents and Royalties, which is conveniently located above agi on your 1040.

Thanks Pam, that's exactly what I was looking for.

I've used TaxCut in the past, I'll have to see if it has the rental forms or if I will have to start using TurboTax in the future.