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    How is rental income calculated?

    in addition to salary, I earn about $10k per year in rental income on the duplex I also live in.

    at tax time however, my net rental income is nearly $0 after deductions for maintenance, taxes, interest, etc.

    when calculating chapter 13 payments, would the gross $10k count as my income, or the net $0?

    Thanks!

    #2
    The gross $10K is counted as "net" income (see Official Form B22C-1). Since this is an owner-occupied duplex, I will not go into my spiel about how it's very difficult to be in a Chapter 13 with investment property and renting. However, please still consider your occupancy rate and what you would do if there was a period of time where you didn't have a tenant (been there, done that!).

    The bottom line is going to be how you deal with the income from that property and your Chapter 13. I was able to convince the Trustee and the Court, in my Chapter 13, that I would file quarterly reports with the Trustee and turn over any "income" from the properties to the Trustee as they are received. I didn't want to be in the position where the Trustee was paid for unrealized "income" from the properties.
    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
    Status: (Auto) Discharged and Closed! 5/10
    Visit My BKForum Blog: justbroke's Blog


    I am not an attorney. Any advice provided is not legal advice.

    Comment


      #3
      Thanks very much for the info.

      I see on B22C however, it asks for total income from rent *minus regular operating expenses. So, maintenance expenses, etc would not be deducted here from the total rent collected?

      Comment


        #4
        Originally posted by Bureaukrat View Post
        Thanks very much for the info.

        I see on B22C however, it asks for total income from rent *minus regular operating expenses. So, maintenance expenses, etc would not be deducted here from the total rent collected?
        You deduct any "regular" operating expense to the extent that you can provide documentation. Regardless, the Trustee will want to see your rental receipts (books), expenses, taxes, insurance, and all other debts associated with the property.

        Owner-occupied multi-tenant dwellings are a little more interesting because you still live there, so it's your primary home. Yet, you may be deriving income from the other unit(s). You may need to include those "property maintenance" expenses as ordinary operating expenses. I would guess (only) that they would need to be ordinary, such as HVAC monthly/annual servicing, exterior maintenance/paint, pest control, landscaping services, etc. It should be reasonable and ordinary in the course of maintaining a rental property. Loss of the tenant could also be a valid ordinary expense of operating the other unit. For example, if you go without, or have gone without, a tenant for weeks... that's an expense.

        See In Re Paliev at the part where the judge looks at the rental income (A. Net Rental Income). The judge opined that while a refrigerator may or may not be replaced, certainly other "costs" are involved in rentals and that it's reasonable that there could be things associated with finding a new tenant, painting, and other similar rental costs.

        I will assume that you're filing with an attorney and that they will provide similar advice on what constitutes an expense.


        Cite: In re Paliev, 2012 Bankr. LEXIS 3801 (Bankr. E.D. Va. August 17, 2012)
        Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
        Status: (Auto) Discharged and Closed! 5/10
        Visit My BKForum Blog: justbroke's Blog


        I am not an attorney. Any advice provided is not legal advice.

        Comment


          #5
          You are a font of wisdom.

          my attorney consultation was mostly great, but the whole rental property thing seemed to throw him a curve ball.

          Comment


            #6
            I take no pleasure in saying this, but not all "personal" bankruptcy attorneys have experience with business bankruptcies. The difficulty comes because you have rental income from a business while in a Chapter 13. That still makes this a little more complex than your standard consumer Chapter 13. Perhaps you should look for 3-4 more consultation before settling in on an attorney.
            Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
            Status: (Auto) Discharged and Closed! 5/10
            Visit My BKForum Blog: justbroke's Blog


            I am not an attorney. Any advice provided is not legal advice.

            Comment


              #7
              I happened to see this and I decided to throw in a comment or two here in case it helps. My comment is that I am not sure that having a rental property, and especially an owner-occupied rental property, constitutes a "business". I own a couple of rental properties, and the question comes up when filling out part of my tax returns. Unfortunately, I cannot off hand recall which part of the returns this relates to. I'll try to figure that out and post back here if I do. I also, belong to two different real estate investor groups in my area. As part of the discussion forums for those two real estate investor groups, the topic has come up whether having "passive" rental income constitutes a "business" or is business income. One school of thought (by CPA's in the groups) is that it is a business. But, another theory is that the IRS has ruled that rental income is passive income and not business income since I do not devote 50% of my time managing and running the real estate investments. So, in other words, the rental income is passive investment income and not business income. If that is true, then I think that a person who owns an owner occupied duplex with rental income, and who files bankruptcy, is actually only filing a "personal" bankruptcy (Chapter 13) and not a business bankruptcy (Chapter 11?). Just a thought.

              Comment


                #8
                Yes, this would never be a business bankruptcy. The only time you have a business bankruptcy is where the business is a separate legal entity than its owner (e.g. a legally incorporated business such as a corporation, LLC, and certain other professional partnerships). The question here, is that on the personal bankrutpcy form for Chapter 13 and Chapter 7, the Means Test specifically speaks of rental income.
                Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
                Status: (Auto) Discharged and Closed! 5/10
                Visit My BKForum Blog: justbroke's Blog


                I am not an attorney. Any advice provided is not legal advice.

                Comment

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