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If I made over $150,000 last year. Can I offset that income with rental property losses?
ANSWER
Expert Matthew Greer's Answer:
Hello,
My name is Matthew Greer. I am a CPA licensed in the State of Tennessee. I reviewed your question and wanted to reply.
Unfortunately, any losses that you get through rental real estate activity will not be able to be deducted against non-passive income because your income will be $150,000.
Typically, rental real estate activities are considered passive activities. If losses are considered passive, they are not deductible unless they can offset them with passive income.
However, just like everything else in the tax code there are exceptions. If a taxpayer actively participates in the rental real estate activity, he/she can deduct up to $25,000 of loss from non-passive income, thus, the first exception to the general rule.
According to the IRS, to be considered active, a taxpayer must own at least 10% of the rental property and make management decisions in a significant and bona fide sense.
Per IRS Publication 527, the maximum special allowance is:
1. $25,000 for single individuals and married individuals filing a joint return for the tax year,
2. $12,500 for married individuals who file separate returns for the tax year and lived apart from their spouses at all times during the tax year, and
3. $25,000 for a qualifying estate reduced by the special allowance for which the surviving spouse qualified.
Although the special allowance is great, there is one more exception but this time you have to give it back.
According to Publication 527, if a taxpayer filing jointly has modified adjusted gross income (MAGI) of $100,000 or less, he can deduct a loss up to $25,000. However, if a taxpayer filing jointly has a MAGI greater than $100,000, the $25,000 is limited to 50% of the difference between $150,000 and your MAGI. For example, if your MAGI is $110,000 and you had a loss of $25,000, you would only be allowed to deduct $20,000 of the loss [($150,000 - $110,000) x 50%]. Lastly, if a taxpayer filing jointly has a MAGI of $150,000 or more, there is no deduction.
Given this information and the fact that your income was greater than $150,000, you will be unable to take the deduction.
Please let me know if you have more questions.
Thank you!
