Limit to how many years you can take a loss against w2?

Question

I make under the limit to be able to deduct 25k against my w-2 teaching income. Is anyone aware of there being a limit to how many years you can consecutively take a loss? I am not sure of how pissed the IRS would be if I took 20k against my income for the next 5 years.

Ashish Acharya · Answer

There are no such rules that you have to report a net income.

Basit Siddiqi · Answer

This is incorrect based on what the original poster is asking.

Rentals do not have to show a taxable profit on schedule E. I have clients who show losses on schedule E for many years.

What you are referring to are business income(non rental) reported on schedule C.

Natalie Kolodij · Answer

I love when Lenders try to give tax advice.

Showing losses infinately for those who meet the IRS qualifications is not an issue at all.

If you make under $100k a year, forever, and buy 1 new house annually, cost seg, and generate $25k of loss annually this shoudln't be an issue. This is incredibly common.

Other items worth noting here:

MOST short term rentals shoudln't be on schedule C.

Being a "self employed " real estate investor isn't a thing per tax laws. That's general phrasing from someone who doesn't know tax legalities.

Having losses on rentals due to depreciation are typically added back for lending purposes and won't hurt you.

And the 3 year rule relates to hobby income rules and the IRS and 162 and 469 are totally different code sections and I doubt the IRS will ever take the stance someone is renting rentals as a hobby. Never seen that court case.

Basit Siddiqi · Answer

@Caroline GerardoThe original poster mentioned "25K against W-2 Income" - This is a specific exception allowed by the IRS for those with rental incomes reported on schedule E.The poster did not mention STR or even LLC / S-corp...The IRS is understanding of taxpayers reporting a loss on schedule E because of depreciation(non-cash tax expense)...Also, Juan did not mention that he only makes $25,000...

Caroline Gerardo · Answer

@Basit Siddiqi many people on here have STR, or claim themselves as self employed investors, or expense on a schedule C, or they have LLC/SCorp etc. Answering this as "no problem" isn't the best advice not knowing what Juan's whole situation might be. Losing money forever isn't a business model and probably attaches bells to someone's IRS returns. In this case where @Juan Contreras only makes $25000 W-2 he might be under the radar unless he's writing off $100000 luxury trips, $100000 of office supplies, and $100000 of advertising or continuing education. The answer is for Juan to ask his CPA.

Caroline Gerardo · Answer

You need to make a profit during at least three of the last five tax years, including the current year or the IRS can go back 5 years and call the losses a hobby and tax you, and the State where you reside or do business... Profit could be nominal but still needs to be something. this is not tax advice, I am not a tax advisor seek your CPA.

Limit to how many years you can take a loss against w2?

Limit to how many years you can take a loss against w2?

Most Popular Reply

7 Replies