Rental House Depreciation and Rental Loss Deduction

Forum|Forum|6 years ago
July 8, 2020
1 reply
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I have rental house income $10K. Rental property depreciation is $20k. So my rental loss is $10K. However, if I enter all info in schedule E, I can’t deduct the loss because my MAGI is over $150K. I have a sole proprietor LLC and actively participated in the business. Since there is no income limitation to deduct losses in schedule C, I tried entering everything there. However, I don't seem to find anywhere that I can enter depreciate for residential rental property. Only commercial is allowed. I wanted to enter residential property depreciation in schedule E and everything else (income, expense etc) in schedule C. Can I do that? It seems Turbo tax allowed it and passed all checks.

TurboTax Self Employed Online

Best answer by

if you are a real estate pro all your rental activity goes on schedule E not C unless you provide the renters with significant services

the irs says

Landlords report rental income on Schedule C -- "Profit or Loss From Business" -- if they provide more than basic services to tenants. Housekeeping, linen service, maid service and meals are examples of substantial services that would require a landlord to use Schedule C. In essence, once you start providing substantial services, you're not just renting property; you're running a hotel or boarding house. Those count as businesses -- thus the requirement for Schedule C.

putting rental activity on Schedule C to get a deduction when you don't qualify, could be viewed, if caught, as tax evasion. if you put them on schedule C, since it is a business there is no such thing as residential real estate. it's commercial. so this will result in a 39-year life for the property. should you sell this property and its not a schedule C business, your depreciation recapture would be based on a 27.5-year life.

MinhT1

Level 15

Your rental activity is a passive activity even if you actively participated. The rental activity is reported on Schedule E and passive losses are suspended if your MAGI exceeds $150k.

The rental activity can only be a non-passive activity if you are a real estate professional.

You qualify as a real estate professional for the tax year if you meet both of the following requirements.

More than half of the personal services you perform in all trades or businesses during the tax year are performed in real property trades or businesses in which you materially participate.
You perform more than 750 hours of services during the tax year in real property trades or businesses in which you materially participate.

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shengj2002Author

Level 2

Thanks a lot for the reply. I probably fail the 750-hours test.

Just for my education, if I was a qualified real estate professional, is that the proper way to enter rental house depreciation and deduct losses: Enter depreciation in schedule E and everything else in schedule C since I don't think I can enter residential property depreciation in schedule C ?

MinhT1

Level 15

If you qualify as a real estate professional, you will enter your rental business on schedule C. TurboTax accepts residential property depreciation if you enter the asset as such on Schedule C.

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