Building Loss affecting AGI

4 Replies


I apologize if this question has been asked. 

If you form an S Corp with your properties and your building has losses, can you write off those losses against your AGi?

@Brian Lee

Yes, you can, but depends on a number of limitations. 

Is this a rental activity? If yes, Is there a reason why you have rental in S-corp? It not not recommended to hold rentals in S-crop. 

There are various limitations on deducting you loss, Passive activity limitation, At-risk limitation, and basis limitation. 

If this is rental activity, If you have AGI more than 150k - your loss will be limited by Passive Activity Loss Limitation. 

Although I dont expect this to be an issue, your basis in your S-corp and the At-risk amount ( basically your investment in the S-corp) is not as much as your loss, the loss will be limited. 

I havent done anything yet. I am as considering doing it for liability issues but reading up people say there are no tax benefits incorporating, but after reading it can change and affect your agi it made me wonder if it’s worth incorporating to help offset my agi.  

I am already phased out of my active loss due to my income being to high.  AMT kicks in and phases it out. So that’s why I was considering other ways of lowering my AGI. Hence thinking about incorporating. 

@Brian Lee ,

Here's a fundamental principle of taxation: whether or not you put your real estate business inside an entity does NOT change your taxes. If you have losses, and losses were deductible without a business entity - they would still be deductible if channeled thru the entity. If your losses were limited without an entity (as in your case) - they will still be limited with an entity. You cannot avoid these rules by merely sticking a property inside some entity.

Every rule has exceptions, and so does this one. As @Ashish Acharya mentioned, there could be situations when a business entity creates additional problems, as well as some rare instances where an entity can help - but, as a rule, you cannot defeat limitations on losses with an entity.

Lastly, you mentioned liability issues. To address those, you normally create an LLC. It should, in combination with good insurance, provide liability protection, while not changing anything on taxes. The details of how LLC can legally protect you is a question for an attorney, and I'm not one. (Not being an attorney never stopped anybody from giving an advice on LLCs though - but their opinions are worth exactly as much as the price you paid for them.)