Q. I generally give maaser kesafim from my business earnings. I recently invested in a real estate venture in which I provided a downpayment of 20% of the purchase price and took out a ten-year mortgage for the other 80%. How and when do I calculate the maaser from the rental income, considering that it is offset by both the property taxes and the mortgage payments?
A. The Poskim (Shu”t Chavos Ya’ir 224; Shu”t Shevus Yaakov 2:86) write that when an object is sold, maaser is separated only from the profits, after deducting the object’s original purchase price from the sale price.
Some Poskim rule that no expenses may be deducted from the gross income from such sales, comparing this to maaser of produce, in which maaser is separated from the entire crop without paying heed to how much the farmer invested into the crop (Haflaah, Kesubos 50a, among others). Some Poskim differentiate between the two types of maaser by explaining that maaser kesafim is supposed to be separated from profit, and expenses that are a normal part of doing business are therefore deducted before calculating the profit that must be maasered (see Shu”t Nish’al David, Yoreh Dei’ah 24, and Sha’arei Tzedek p. 302). Others explain that maaser kesafim is considered “partnering” with Hashem in one’s business, and just as business partners deduct all expenses and losses before splitting the profit, so, too, we deduct expenses before calculating “Hashem’s portion” from the profit (Chavos Ya’ir ibid.). Others disagree with the Chavos Ya’ir on the grounds that this turns the holy into the mundane and makes it sound as though a human can be on the same level as Hashem (Shevus Yaakov ibid.). The Poskim nevertheless rule leniently, explaining that since maaser kesafim is not an absolute obligation, but only a praiseworthy custom, it is permissible to deduct expenses before calculating the maaser (She’eilas Yaavetz 6).
For instance, if someone bought an object for $100 and sold it for $125, he separates maaser only from the $25 profit. Furthermore, most Poskim rule that if he had to invest money into making the sale, he deducts that amount from the sale price as well before giving maaser. (For instance, if he had to pay $5 to deliver the object, he would maaser only $20).
A businessman may therefore deduct all of his overhead expenses — including office rental, electricity, phonelines, advertising, payroll, taxes and business-related travel expenses, and so on — from his gross income before calculating the maaser.
But anything that will remain in his possession — i.e., if he purchased office furniture — may not be deducted from the gross income. Since he can sell them at any point, they are not considered expenses. He may, however, deduct the depreciation (Rav Shlomo Zalman Auerbach, in Kovetz Kol Torah issue 39, p. 87 ; cf. Shevet HaLevi 9:201[6] for a more lenient approach; see Psakim u’Teshuvos, Yoreh Dei’ah 249:27).
The Poskim debate how to calculate the maaser in your case, where you intend to pay your mortgage from the rent you collect from your tenants. Some Poskim consider this akin to the sale of an object, in which the maaser is calculated only from the profit once it is sold (see Shu”t Maharil Diskin 22, in the footnote), but as long as the owner retains the object, even if it goes up in value, he is not obligated to deduct maaser.
In the case of a property, this would mean that you may deduct any expenses of the investment property from the rent you collect, including the amount you are paying toward your mortgage, each payment of which is comprised of principal (the original amount you borrowed) and interest, and you separate maaser only from the remainder of the rent. If you sell the property, or receive funds by refinancing the property, as is common in the industry, you then calculate the maaser by deducting your downpayment from the sale price (see Kovetz Psakim 15:5).
Other Poskim rule that you may not deduct the full mortgage payment, only the interest you are paying to the bank. The principal may not be deducted, according to these Poskim, because that is part of the purchase price of the property, which becomes fully yours when you pay off your mortgage, and the property then becomes part of your net worth, so it is not considered an expense and cannot be deducted before you separate maaser (B’Orach Tzedakah ch. 9, note 9, and Psakim u’Tshuvos loc. cit.).
Given this dispute, you should consult with your Rav as to which approach to follow.
