Rental Property Investor · Lockport, IL · Member since 2019 · 169 posts · 37 votes
Hello BP community. I recently got my taxes done and was told I couldn't deduct the rental loss due to my income for the year. What are my options here to capitalize on the tax advantages for next year? I have an LLC currently but it's for a non real estate business. I also understand that quick claiming a property into an LLC can trigger a due on sale clause? I believe that's what it's called. Just wondering my options, and that may be the only one but open to any suggestions and really appreciate any feedback. I only own one SFH as of now but plan on purchasing a second this year. Thanks!
The LLC should be a pass through to your return so moving it into the LLC will not likely help you. You won't lose the deductions it can be taken in future years when your allowed to take them or when you sell.
The LLC should be a pass through to your return so moving it into the LLC will not likely help you. You won't lose the deductions it can be taken in future years when your allowed to take them or when you sell.
@John Underwood ok thanks John. She did mention that it "carries forward" but I wasn't 100% on what that meant. So opening an LLC won't help me but I may be able to deduct the losses in the future if say I have a less of a year income wise? If that makes sense
@John Underwood ok thanks John. She did mention that it "carries forward" but I wasn't 100% on what that meant. So opening an LLC won't help me but I may be able to deduct the losses in the future if say I have a less of a year income wise? If that makes sense
Yes that is my understanding. I was in the same boat for a long time until I quit my day job and qualified as a RE professional.
You're probably referring to the passive activity loss limitation. The excess loss is deferred i.e. carried over indefinitely until you have passive income available to utilize it against or you just sell your entire interest in this rental property. Why do you have so much loss anyway? Accelerated depreciation? If you get a second rental and that's producing income you'll be able utilize the excess loss carried over from first rental against the second rental as well.
@John Underwood so the only way to do it is to be considered a RE professional? Looks like I need to give my two weeks!
I did exactly that 6 years ago and haven't looked back. Lots of things to consider but a really important one is 1) how will you eat and 2) how you will obtain financing if you quit. Banks love lending to W2 employees, not so much for self employed. We are considered just "unemployed" until you have 2 years of tax returns that support loan payments again. So that could be 3-4 years if you don't have a clear path to income that isn't tied to a job. Viscous cycle, can get financing while working but no time to look. Quit to have more time and can't get financing.
Safest path is to build up side hussle until it can support 1) eating and 2) tax returns that are healthy enough to get financing.