Active vs. Passive & Tax Consequences

[John McAuley]

Hey Everyone,

This is the first year we will have rental property on our tax returns. I'm familiar with W2 income and income from our other businesses (LLCs). However, I'm not clear on the active vs. passive rules when it comes to being able to offset other income with my passive rental losses. I'm above the 100K limit on rental losses and since I only have my first rental, it's hard for us to make the argument that my wife spends the 750 hours on our real estate. But does this mean that we won't be able to deduct any losses from our real estate LLC holding the property or does it just mean the rental property itself. In other words, there have been a lot of expenses associated with the typical process of buying a property (mileage, legal fees for LLC formation, property management software, etc.). Are all of those expenses under the LLC prohibited as well or will I at least be able to use a portion of the LLC expenses to offset my other income but not the losses of the property (interest, depreciation, etc.)

Hopefully it is clear what I'm trying to ask. I just find it very hard to believe that I would be disallowed to use the loss from this business like any other business I have just because it's a real estate focused LLC and I exceed the income limits.

Thanks in advance for any help.

John