Tax Deductible Limits

[Jeremy Keone]

Aloha. 🤙🏾 Looking for advice and insight. Any help is much appreciated. Recently I have been exceeding the limit on tax deductions for my rental property business, when filing for my annual tax returns. Every year I defer the excess to the following year and it feels as tho I’m not taking full advantage of the situation. Everyone talks about the benefit of being a business owner and taking advantage of things being “tax deductible”, but what about exceeding the limit? Please help. I feel like I’m doing something wrong that is basically a “rookie” move. Sorry. First post. Need help! Any info, suggestions is much appreciated.  Mahalo

[Eamonn McElroy]

@Jeremy Keone

There isn't a "workaround" per se.

The passive activity loss rules are hard to get around for a reason: that's the way congress intended them to be.

Either:

(1) You reduce your modified AGI below $150k, or even better -- below $100k, to take up to $25k in passive losses against your other taxable income.  This isn't advisable.  You'd be letting the "tax" tail wag the dog.  Generally it's better to focus on building wealth, not current tax savings at any cost.  Think holistically.

or

(2) You qualify yourself as a real estate professional and materially participate in the rental.  If you have a W-2 job, even part-time, this would be extremely difficult (if not impossible) to do with one rental.  If you are married, your spouse might be able to become a real estate professional if self employed in the real estate industry or looking to change careers/start working in the real estate industry.

The easier route to take would be to invest in another property that produces net taxable income (property 2) and use tax losses from property 1 to offset property 2 taxable income to zero.  Usually high cash flow properties produce net taxable income.

All of this is general advice without knowing your exact facts and circumstances.