Losses and taxes
About 10 years ago, Friend A (on advice from his CPA) and an IRS rep both told me that I should strive to not have a loss on my rental property for more than three years, or no more than three out of ? years (not sure of the number now...5? 7?)
Last week, Friend B insisted that while that rule may apply to other businesses, there is no such limit when it comes to rental property. He was shocked that I'm not reducing my tax burden each year by maximizing my losses. For example, his CPA had him report some reasonable maintenance costs that he did not actually incur. "Everybody does it." I'm not interested though, unless this is actually legal.
My main concern is that my _actual_ maintenance costs could cause me to have another loss year, and I don't want to push the envelope. The IRS explanations aren't entirely clear to me. Where can I learn more about how to handle losses at tax time, and get a better understanding of passive losses, carrying losses forward, etc.? Can I have a loss as often as I want to, as long as I don't use it to offset my other income? Or does that make my rental property a hobby and not a business, and thereby prohibit me from using rental expenses to offset rental income?