Taxes

I bought my first property 13 months ago, a 5 bdrm house. I rented out 4 of the bedrooms for the past year. If I added up all of the rental income I received, I will have broken even on the property, all included. If I include the portion I also paid to live there (or the amount I will be receiving for my room should I move out) – my total rental income from the property will be 20% above my total costs. It is an “owner-occupied” property as I’ve been living in it for the past year.

I now want to purchase another property (while keeping my first) and start the process again. My questions are related to how best to set myself up to buy another property (tax wise) and also I would like to know whether I will receive more of a refund in taxes if I did not claim rental income or if I claim depreciation (and whether both can be claimed.) I understand that all rental income (under law) must be claimed. But since this is my first year owning a property and I would like to buy another in the next few months, I would like ot know BEFORE I pay an accountant hundreds of $$ how it works. I would be claiming my current property as a rental to the IRS once I purchased another property. I’m assuming that since I paid $14,000 in interest in 2004, I’ll be getting around 20% of that back? I have the direct line form for figuring depreciation, I just want to know ahead of time whether I could end up OWING a lot of $$ in taxes. Thanks so much – Shane