First, some terminology clarification.
There is no such thing as "rent income loss". You don't "lose" rental income. What you have is where your rental losses exceed your rental income, and this is not only perfectly normal, but expected with each passing year - especially if you have a mortgage on the property.
The program automatically carries forward your losses every year, and you'll see that those losses that get carried forward will actually increase with each passing year. While not impossible, its not common for an increase in rent to result in no losses in the current year - unless you damn near double the rent and the tenant actually stays and pays it.
Basically, when you take into account the depreciation you're required to take by law, along with the deductible expenses of mortgage interest, property taxes and insurance, those alone will usually be more than you collect for rent the entire year. Add to that your other allowed rental expenses (repairs, maintenance cost, etc.) and you're practically guarantted to never show a taxable profit on rental income. But of course, that doesn't mean it would never happen.
Once your current year depreciation/expenses are deducted from current year rental income, if you still have any taxable rental income remaining then any carried over losses will be deducted from it to get your taxable rental income to zero. Anything remaining gets carried over.
Normally, you can't "realize" your losses until the year you sell the property. In that year it works like this:
- First, the total of all depreciation taken is added to your sales price. This determines your total taxable gain.
- Next, all your carry over losses are deducted from that total taxable gain.
- If this gets your total taxable gain to zero and there are still losses remaining, then the remaining losses can be deducted from "other" ordinary income. (Such as your W-2 income) up to a maximum of $3000 a year each year, until those losses are all used up.
