Income Cap for Rental Deductions?

Question

Logan Allec · Answer

@Justin Johnson, you still get the deductions.  It's just if you have a tax loss on your rentals and other forms of passive income, you can't net them against your other forms of income (e.g., your W-2 wages) unless you or your spouse is a real estate professional.  And even these losses aren't lost forever as @John Smeltzer mentioned.  They are simply tracked and carried forward until you have passive income or you dispose of the property.

Wayne Brooks · Answer

Account Closed Getting a real estate license doesn’t make you a “RE professional” for tax purposes….you have to spend 750 hours/year “in the business”.

Account Closed · Answer

@Wayne Brooks A critical distinction. Thank you, Wayne.

Account Closed · Answer

I was disappointed to learn this as well. But you should be able to add the rehab you did into your depreciation schedule, which is still a huge tax shelter. Ask your accountant to be sure! If you're a real estate professional in the eyes of the IRS, you may deduct other repairs/expenses with no limit. By the way, it only takes three easy classes plus passing the state exam to get licensed in real estate! Disclaimer: I'm no pro so double check! Plus I live in California, so it may be different in Illinois.

Fang Underhill · Answer

I am trying to figure this out too. Following.

Basit Siddiqi · Answer

@Justin JohnsonThat is incorrect - Rental deductions are allowed against rental income.However, if you are making above $150,000, your net rental loss gets suspended and carried forward.

Ashish Acharya · Answer

@Justin Johnson ,

Based on your situation, looks like you make more than 150k a year, which is awesome. You can do few things:

• 1)First, see if you can find a way to decrease your AGI below 150 in you are on the borderline. Bunch of ways to do that. Talk with you CPA. 
• 2)If you make way over 150, than I would suggest investing in diversified property groups with different outcomes (some rentals might not have a good future appreciation, but have a good cash flow that will absorb your other rental loss). Or Since  you are a high earner,  invest in other business as a passive investor where you can generate passive income.

Good luck.

John Smeltzer · Answer

That's right, but you don't lose the losses.  They can be carried forward and utilized when your property becomes profitable or when you dispose of the property.  I believe the losses get tracked on IRS Form 8582.  Turbo Tax should handle that for you.  As always, you should consult a Tax Advisor for your particular circumstances.

Income Cap for Rental Deductions?

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