Deducting Business Expenses & the Standard Deduction

4 Replies

If you're employed with a W2 Salary and are investing in rental properties under a LLC (disregarded entity), would you even be able to make deductions if they add up to be less than the standard deduction on your personal return, $24k in my case as I file a Married, joint return?

With only a few properties, I doubt I'd come close to breaking the $24k standard deduction threshold. Am I missing something?

Thanks!

Yes.  Rental property deductions are "above the line", not "below the line" like itemized / standard deductions.

Looks like losses would be passive based on what you laid out.  If you can't utilize all current year losses, they carry forward indefinitely.

Originally posted by @Navid A. :

If you're employed with a W2 Salary and are investing in rental properties under a LLC (disregarded entity), would you even be able to make deductions if they add up to be less than the standard deduction on your personal return, $24k in my case as I file a Married, joint return?

With only a few properties, I doubt I'd come close to breaking the $24k standard deduction threshold. Am I missing something?

Thanks!

1) The business deduction has nothing to do with the standard deduction. 

2) You deduct business expenses against business income. If there is a loss, and there are no restrictions on the deductibility of the loss, you get to deduct the loss on top of the SD. 

Let's say you have 100k W-2 income. 

Your business revenue is 20k and expenses is 30k = net loss of 10k

You get to deduct your 25k SD and also 10k loss against your income, again assuming there are no limitations on deducting on your business loss. 

That's how it normally works. 

Thank you both for the quick reply.

@Ashish Acharya , I wish every tax law could be broken down as easily as you described! Thank you for that. What would be some limitations to have much of a loss I can claim for the year vs carrying it forward?

Originally posted by @Navid A. :

Thank you both for the quick reply.

@Ashish Acharya, I wish every tax law could be broken down as easily as you described! Thank you for that. What would be some limitations to have much of a loss I can claim for the year vs carrying it forward?

Passive activity limitation 

At risk limitation 

Basis limitation 

And such.