Posted by Dave T on February 06, 2010 at 19:07:56:
In Reply to: Re: Lease/Option Sandwich TAX HELP!!! posted by Bob on February 05, 2010 at 13:50:07:
My answer would be the same if the properties were owned free and clear. Any mortgages on the properties are not your mortgages and not your business expense.
You are a landlord. You collect rents. You are also a tenant, you pay rent -- not a mortgage payment.
The rent you pay is a business expense. The rent you collect is revenue to your business. In the course of running your business you also have some overhead costs. The difference between your revenue and your expenses is your net income.
Because you are operating this business in your own name, you are a sole proprietor. You are not only the owner of the business, you are also its only employee. Because you are an employee and your own boss, you are said to be self-employed.
As a self-employed individual, your self-employment income is your business's net income. In addition to ordinary income taxes, the government requires you pay social security and medicare taxes on your self-employment income just as your W-2 job withholds income tax, social security and medicare taxes from your paycheck.