If you have high earned income and can funnel some of the extra money into your passive real estate business to make repairs etc that supplements the passive cash flow, can you still write these expense of as business deductions, even though the money came from your earned income?
I’m not a CPA or Tax Accountant so I can only tell you what my understanding is. Here goes… If you are not a Real Estate professional, and your high income is from a different field, you cannot deduct “Passive Income” Losses. You can only use these losses to offset passive income. The distinction of Real Estate professional is deriving your income from spending more than xxx hours working in the Real Estate profession. You can still show a paper loss position. However, that loss doesn’t offset the earned income.
That said, you can use the expenses as an offset to your passive income. You can reduce your passive income by that amount to reduce your tax exposure. I keep my Real Estate investing activities contained within an LLC for accounting, and liability purposes. All my business revenues and expenses are tracked in my LLC accounting. The LLC is a pass-through or entity, so it is ultimately recognized as part of my single tax return.
After all factual and legitimate accounting, the tax exposure can be significantly minimized with proper planning, documentation, and execution.
Again, I’m not a tax professional and I don’t play one on TV. This is my understanding and not advice. Other than to seek true professional guidance and proceed accordingly.
Short answer: YES. You can deduct repairs to your rental property from rental income regardless of the source of funds used to make the repairs. However, if your high income makes you ineligible for the net passive loss allowance, using your ordinary income rather than rental income to make rental property repairs will not reduce the tax liability on your ordinary income. Your net passisve loss carryover, if you have one, will reflect the repair expense.
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