I've spent money on a property I bought but never got the chance to rent it last year, would I be able to claim/deduct any of these expenses ?
Also does expenses on improvement comes from the over all income including income from W2 or just from the rental property income ?
Rental expenses are taken against associated rental income amounts. If these expenses are greater than the income, this is called a Rental Loss.
A Rental Loss can only be used to offset other income reported on your tax return if you are an Active Participant in that rental property. In this case, you would be allowed to deduct up to $25,000 worth of rental losses to be offset against other income items on your tax return (such as your W-2 wages).
The IRS defines an Active Participant as: "You (and your spouse) owned at least 10% of the rental property and you made management decisions or arranged for others to provide services (such as repairs) in a significant and bona fidesense. Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and other similar decisions."
For more information, please see: IRS Publication 527
But from some reason Trubtax is giving me zero for defection even though my net loss is in thousands !!
Sorry I meant deduction. My expenses in the thousands but TurboTax shows zero for deduction to be claimed !!
@tarif.mohaisen
When TurboTax asked if you were an active participant, did you say "Yes"?
yes I did, I went through the guide to determine if I'm an active participant !!
@tarif.mohaisen
Here are some other reasons you may not be getting the deductions:
- Modified adjusted Gross Income > $150,000
- You are a limited partner in this rental
- You own less than 10% of rental
- The rental is for something other than real estate. Equipment, computers, boats, vehicles, etc. Leases of personal property are generally passive regardless of the level of participation
so if income > $150,000 can't claim any of the rental deductions ?
If your modified adjusted gross income (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.
I have a similar question. My LLC has $200K income (lets say some consulting work). Same LLC owns real estate and has depreciation received is $100k. Can this $100K be allowed to apply on $200K income ?
Thanks in advance
"same LLC owns a rental" ? Unusual ... so is this a single member LLC ? Is the RE the building the business is in ??
Yes, same LLC owns rental properties and also generates some income through consulting. Right, it is Single member LLC.
Ok ... as a single member LLC the consulting goes on the Sch C and the rentals go on the Sch E as if no LLC exists.... UNLESS you incorporated ... if so it all goes on the 1120S.
so if income > $150,000 can't claim any of the rental deductions ?
You understanding doesn't appear to be clear. You will "CLAIM" all deductions you can on the rental property. But if your income is to high, your deduction will not be allowed. The unallowed deductions will be carried over to the next year. But if you do not claim the deductions in the tax year they occur, then you can *NEVER* claim or take those deductions in a future year.
The only thing different about that is depreciation. You are *required* to claim depreciation every year the property is classified as a rental, no matter what. Weather the depreciation deduction is allowed or not is not relevant. You are "required" to claim it.
@Carl wrote:
so if income > $150,000 can't claim any of the rental deductions ?
You understanding doesn't appear to be clear.
This was explained in a previous post (years ago).
The reference is to the special allowance for active participation.
See https://www.irs.gov/publications/p527#en_US_2020_publink1000219124
Is "Pension Income" considered "other income items" as it relates to the following statement?
A Rental Loss can only be used to offset other income reported on your tax return if you are an Active Participant in that rental property. In this case, you would be allowed to deduct up to $25,000 worth of rental losses to be offset against other income items on your tax return (such as your W-2 wages).
Yes, the income would qualify to be offset but note that the offset is only your actual rental losses (not the entire $25,000) and the MAGI limitation applies.
This thread is old but, to clarify; if someone doesn’t have any W2 income, they do have income from rentals but there were major deductions due to repairs, maintenance and other costs, they won’t receive any monetary *return* correct? Those losses only offset income from the rentals and would have also helped offset income from a W2, but without a W2, once the rental amounts have zero’d out, that’s it and there’s no actual money return because there wasn’t a taxable amount of income which experienced withholding throughout the year? Just wanting to verify.
You are correct. With no other income to offset the loss from the rental activity, no tax benefit would be realized in that tax year.
However, passive losses are carried forward on Form 8582 to future years until 1) there is other non-passive income to trigger the exception, 2) the carryover losses offset Passive Income or 2) you dispose of the rental property.
TurboTax will automatically calculate your passive losses, apply them when possible, and carryover any excess. See Form 8582 Part II to review how the allowance is calculated.
Thank you for the prompt reply!
That is great to know regarding them being “carryover” and that TT will do it automatically!
I will enter all losses/deductions as normal then. Almost didn’t seem worth it, as it’s tedious and there was no benefit in this years return but absolutely worth it if the realized losses will offset income on the next years filing! And without having to manually do 179 etc.
Thanks again!