Just heard back from my tax accountant and I was expecting some good news that we were getting a positive return from owning 6 different rental properties (bought 2 in 2019) but instead he tells me that we're just breaking even.
The reason being that we make too much from our W2 jobs to claim depreciation. The income we make from the properties is all written off from the expenses we claim, which is great. But I was hoping to get a return.
Any thoughts on this? Is he missing something? I know I'm probably being vague, but I'm tax illiterate.
Accountant · Vancouver, WA · Member since 2019 · 100 posts · 71 votes
6y
It sounds like you are running into the passive activity rules. If you make over $150k in other income you cannot have a net loss for your rental activity. Any losses you have will be carried forward to future years.
You are able to take a maximum of $25k to offset your W2 income if your income is below $100k. Once you are in the $100k - $150k range, your losses are limited. If you are above $150k, you cannot take any rental losses against your W2 income.
@Adam Rasmussen hello- my husband is retired and he does not have W2, can he get some tax benefit on our rental property ( married filing separately)? Showing that he has spent 750 hours to our rental? Thank you
That sounds like he easily meets the majority test since 100% of his time is devoted to real estate. Sounds like he qualifies!
Hi again, sorry to bother you- We have been filing separately for many years! If we file jointly we end up paying more, we used turbo tax to crunch in numbers. With current situation, acquired our rental in 2019, we owe $14k. I am wondering if we just hold on filing the losses in the future, or better for my husband claim all and benefit this year. We are currently desperately looking to rent the place and it has been vacant for 4 months. Our losses for 2019 is ~ $60 k. Scammed by our partner who had 10% of the house, asked for a lot of money to do rehab, then asked us to get loan on the house (originally purchased in cash), scammed by lender, ended up paying $8000 for lender fee etc, had to hire someone to rehab for the job he never completed, so spent ~10k after we kicked him out. He pocketed all rents, $10k, in 2019. Thank you so much
Rental Property Investor · Columbia, SC · Member since 2019 · 38 posts · 10 votes
6y
@Joe Delgrosso my tax guy told me that business owners don't receive tax refunds those are a thing of the past. You just have to live off of the capital gain which is capped at 15%
Rental Property Investor · Nashua, NH · Member since 2014 · 598 posts · 477 votes
6y
As always NoLo is a great resource here:
“Property owners with modified adjusted gross incomes of $100,000 or less may deduct up to $25,000 in rental real estate losses per year if they "actively participate" in the rental activity. You actively participate if you are involved in meaningful management decisions regarding the rental property and have more than a 10% ownership interest in the property. This allowance is phased out for taxpayers whose MAGI exceeds $100,000 and eliminated entirely when it exceeds $150,000. Thus, it is useless for high-income landlords.”