How to handle passive loss on rental properties

[Linh Lynne]

Hi-
I have been doing my own taxes and the last few years, I have noticed that none of my passive loss on rental properties can be deducted from my tax because I am not a real estate professional base on the IRS rule. I have not been carry the loss forward because I can't deduct them. I was wondering if I do sale the rental down the road, can I go back and deduct all the passive loss or do I have to keep rolling the passive loss year after year in order to deduct them when I sell the property. Another words 2012 tax year should contain passive loss from 2011, 2010, 2009, etc?

Thanks in advance for your response.

[Jon Holdman]

Yes, you should be carrying forward your passive losses and then you can use them when you sell. When you sell you will be subject to capital gains tax and tax on the unrecaptured depreciation. The depreciation you take each year on the rentals (or what is allowed, if you don't take it or take less) reduces you basis and increase the gain when you sell.

Even if you're not a RE pro, you can deduct the passive losses against ordinary income if your AGI is under $100K. Can't if its over $150K. It phases out in between.

DIY taxes and rentals don't go together, IMHO. Get a CPA.