Should I try to minimize losses if I phase out for most of them anyway?

Question

I have a loss on a single rental property of about $3,500.  Because my MAGI is $150k the loss is phased and I am not able to reduce my income by the loss.  If that's the case should I not include all of the expenses that I can deduct i.e. mileage and other repairs?  the reason I believe I would want to is because showing less of a loss for the property on my taxes might help my debt to income ratio when trying to get future loans.

Account Closed · Answer

Typically bookkeepers maintain the books and records of businesses.  CPAs are allowed to practice in many areas of private and/or public accounting including tax practice.

There are many good EAs, CPAs and tax attorneys. There are some tax professionals that are not very good.  Anyone choosing a tax professional should do their own due diligence rather than simply relying on a designation and assuming that means someone is good.

Dave Toelkes · Answer

Most enrolled agents specialize in tax work. The EA credential allows them to represent taxpayers in dealings with the Internal Revenue Service. They prepare tax returns, appear for clients during audits, intercede in collections issues, set up installment plans and offer compromises to the IRS. EAs who have passed a tax court exam can represent clients in court

Not all CPAs specialize in taxes and most are not certified to represent you in tax court.

Steven Hamilton II · Answer

Take the loss, believe it or not the law says that you must take all expense against your income that you are supposed to for any business.  Also you could possibly be on the line for mortgage fraud for reporting your income deceptively.  Stack the losses and when you sell be happy that it'll offset the depreciation recapture. (I had a client earlier today who was VERY happy he has those carryovers when his property was foreclosed with him having a gain.)

-Steven
Enrolled Agent

IF you don't know what an EA is. He is the one that is supposed to be preparing your tax return and you CPA is supposed to do the books.

Account Closed · Answer

You want to take all of the deductions you are legitimately entitled to even if it doesn't help you in the current year.  Like others have said these losses can be carried forward and used in future years.  If you are unable to use them before selling the property you can use them when the property is sold to offset gains.

You can do some tax planning during the year that may help.  When the year is over your options dwindle and basically preparing the return is about reporting the transactions that occurred.

Steven Hamilton II · Answer

Finance,  Well put; I will however, say that the IRS will allow you to reconstruct expenses, if they are deemed reasonable.

The law however does in fact say that for all businesses you are required to take all expenses you incur for which you have documentation.

Bill Gulley · Answer

LOL, an EA goes to a class. A CPA is a degreed accountant with  an internship and passes a very difficult 7 part ( I believe) examination, it's not taken in one day. The difference would something like that between a mechanic and an automotive design engineer.

I don't think the law "requires" you to take every expense or deduction, it allows you to do so. I have had many expenses where, for one  reason or another, I could not prove the expense, lost receipts for example. You should not take an expense you can't prove now should you? If the IRS knew about my expenses, I shouldn't have to list and add them!

Don't forget that depreciation is added back in to income when you apply for a loan, expenses are not. If you have been in the business for more than three years, your tax returns will be averaged so arrive at qualifying income, so one bad year might not kill you. Ask your lender and plan ahead.

Mitch Kronowit · Answer

Your losses carry over into the future when you either sell the property or your income situation changes, i.e., drops.

Are you self-employed and don't want to show the reduced income? If so, you may have a valid concern in regards to qualifying for another loan, but if you're a W-2 earner, the bank will probably just take 25% off the top of your rental income and not look at your itemized expenses.

Should I try to minimize losses if I phase out for most of them anyway?

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