Capital Expenditure offsets income

[Anthony Conrad]

If my capital expenditures on a rental property exceed my rental income, can I use those expenses to offset W2 income or does it only offset passive income? I just got my first rental property rented and I’m trying to decoy if I should make capital improvements this year and get my losses out of the way.

[Ashish Acharya]

Originally posted by @Brad Hammond:

Hey @Anthony Conrad, if your rental property takes a loss you can deduct the loss off your W2 income depending on how much you make.  If you (and your household if filing jointly) make under $100k, you can take the whole loss.  If you make between $100k-$150K, you take it on a sliding scale.  After $150k, you can't take any of it.  It does rollover in the future till you can take it which will most likely be when you sell the property.  

Since these are cap-ex projects, you will need to calculate the deprecation schedule of the items.  Even though you paid $900 for a fridge this year, you can only take 20% of that since it has a 5-year schedule for example. 

Mostly right, but you can take 100% deduction on the fridge mentioned above. 

Also, the above mentioned active participation exception (25k loss) only comes into play if taxpayer is not a real estate professional. If you could qualify as a RE pro,  and meet the other requirements, your losses are not limited. Pleae talk to your advisor if you dont understand this fully. You dont want to miss out on the opportunity of any tax savings.