It depends. There are two factors that determine allowable loss.
- First is 'active participation' - you must be sure to answer this question correctly with a 'Yes' in the rental activity if you make all the decisions about the rental, even if you have a property manager.
- Second is income - Maximum special allowance. The maximum special allowance is:
- • $25,000 for single individuals and married individuals filing a joint return for the tax year,
- • $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
- • $25,000 for a qualifying estate reduced by the special allowance for which the surviving spouse qualified.
- If your MAGI is $100,000 or less ($50,000 or less if married filing separately), you can deduct your loss up to the amount specified above. If your MAGI is more than $100,000 (more than $50,000 if married filing separately), your special allowance is limited to 50% of the difference between $150,000 ($75,000 if married filing separately) and your MAGI. Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance.
The depreciation for the first year of conversion does start in July and is calculated correctly ($11,402), using the 27.5 year recovery period.
If your income below the is over the threshold above for your filing status your loss will be suspended and carried forward.
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