How much of business expenses can I write off?

Question

Hi all, I have a W2 job and this year I started buying SFH rentals under my LLC. How much in business expenses can I write off? Is there a limit? Thanks.

Michael Plaks · Answer

You posted a question that sounds simple but it is not.

1. Need to be clear about what "business expenses" mean. Some items may be deductible right away, others may be deductible later, and some may not be deductible at all. No way to explain all this in a forum post.

2. Need to be aware of timing. Expenses before you purchased your first property may not be deductible, because you did not technically have a business yet. Business starts not when you form an LLC but when your first property is ready for occupancy. And if you bought properties that needed work before being rented, it gets even more complicated.

3. Even if an expense is deductible and your business has already started, you may run into income-based limitations, as Joshua explained.

Sorry, this stuff is not intuitive. You either need to do a good amount of self-study or hire one of us tax professionals:  https://www.biggerpockets.com/forums/51/topics/1222774-expla...

Joshua Thompson · Answer

Hi Victor,

I'm going to assume this is a long-term rental, you actively participate, and you own 100% of it in your LLC. Depending on your W-2 income, the losses produced from this rental property will only be able to offset, at most, $25,000 of your W-2 income. As your income increases over $100,000, assuming you're not married filing separately, that $25,000 amount will decrease. Once your income is at or above $150,000, that $25,000 will most likely be reduced to $0.

To know exactly how much the rental may or may not benefit you, it would be beneficial to speak with a tax professional. There are some great tax professionals here in the forums. There are also many posts related to this that could help you.

@Jaycee Greene thank you as always sir!!

Josh Lewer · Answer

@Victor N. EVERYTHING! I joke but the tax code is set up to deduct everything "ordinary and necessary" for your business. seems simple but that's where it gets difficult as the tax code is complex defining all the exceptions, exclusions, exceptions to the exceptions  for that broad umbrella of "ordinary and necessary"

good question and definitely worth getting squared away while 2025 is still open.

Jaycee Greene · Answer

Hey @Victor N., welcome to the BP Forum! I recommend you connect with @Joshua Thompson. He's an accountant in Dallas that works with a lot of real estate investors.

Cameron Jones · Answer

Hey Victor, Michael put it excellently. It just depends. If the business is operational (ie. Rental properties are placed in service) then just about anything that's ordinary and necessary. If the business is still "starting up" (ie. Rental properiee still in the scouting phase, not closed yet, and not placed in service) these expenses likely cannot be expensed and have to be capitalized until your placed in service date. Then there's loan/finance charges, you can't just deduct finance charges such as origination fees, appraisal fees, and other charges associated with loan acquisition because these have to be amortized over the life of the loan. There are a lot of other nuances via IRS codes. It's so important to have a concise bookkeeping and accounting system set up. Excel sheets alone can be tough, recommend QuickBooks with a solid Chart of accounts tailored to REIs

Ned Carey · Answer

@Victor N. As said it is not as simple a question as you might think.

Not all money you spend on your business is the same. There are business expenses and Capital expenses. Business expenses are deducted the yea you pay them. Capital expenses are depreciated over time.

The IRS has publication on various topics. You can download them for free and I suggest you do. Pub 527 on rental properties is a good start.  Not understanding tax laws can costs you a lot.

Aaron Zimmerman · Answer

As other professionals have noted, ordinary and necessary is the benchmark. Is it ordinary and necessary in the course of your rental business? I'd look at schedule e to see the common expenses. Additional expenses that can be deducted are networking, education. There are no limits in theory but you will want to be aware of the repairs vs capex rules that may impact deductibility of some expenses.

Jason Malabute · Answer

For rental real estate, expenses must generally meet the standard of being both ordinary (common and accepted in the rental business) and necessary (helpful and appropriate for operating or maintaining the property). Things like interest, taxes, repairs, insurance, and management costs usually qualify under this rule. But when you ask “how much can I write off,” that’s really a different question, because it depends on your overall tax situation. If your income is under $150,000, you may be able to deduct up to $25,000 of rental losses, though this phases out as income rises, and if you qualify as a real estate professional for tax purposes, the limits are different and you may be able to use all of your losses. So yes, you can write off ordinary and necessary expenses, but how much benefit you actually get depends on your income level and your tax status.

Al Watts · Answer

On YouTube check out Jasmine DiLucci, JD, CPA, EA. I personally use Engineered Tax Services. Throwing my pearls here for you hopefully you will appreciate lol

Basit Siddiqi · Answer

You can write off 100% of your business deductions as long as they are ordinary and necessary.The next question is how much of my rental losses can I offset against my other forms of income such as wages, interest and dividends. Best of luck!

How much of business expenses can I write off?

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