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rachna1
Level 1

High earned income/deducting rental expenses

My husband and I earn around $260k and have a 2nd home which we have just turned into a rental property. Am I able to write off the expenses associated with the income from that rental property? If I am not and just have to wait till we sell it to take those losses, do I have to pay taxes on the current income since I can't deduct the losses?

10 Replies
Carl
Level 15

High earned income/deducting rental expenses

When your income is over a certain threshold ($160K I think) then your rental losses are limited. You will still claim all rental expenses on your tax return each and every year. However, if the AGI is to high it may not be allowed. But you still claim it. (If you don't claim the expense in the year it's incurred,, then you may never be able to deduct it later).

Your unallowed losses will be carried over each year until such time your AGI allows you to deduct it, or when you sell or otherwise dispose of the property in a future year.

rachna1
Level 1

High earned income/deducting rental expenses

So do I have to claim the rental income (without the expenses) which is a positive number and just adds to my overall income?

martinmarks
Level 10

High earned income/deducting rental expenses

So do I have to claim the rental income (without the expenses) which is a positive number and just adds to my overall income?

No! You can deduct your regular rental expenses from your rental income. 

martinmarks
Level 10

High earned income/deducting rental expenses

Also....no offense....but with questions this basic you should think about sitting down with a local tax pro.

rachna1
Level 1

High earned income/deducting rental expenses

I thought since my w2 income (AGI)  $260k that  I couldn't deduct the rental losses until I sold the property so how can I deduct them from the rental income of that year? That would mean I was getting the benefit of the expenses when I am well over the $150k limit and am not a real estate professional.

martinmarks
Level 10

High earned income/deducting rental expenses

@rachna1 you can deduct your rental expenses up to the amount of your rental income.......net rental losses greater than your rental income are carried forward as passive losses. I think you're confusing expenses with losses.

Carl
Level 15

High earned income/deducting rental expenses

Enter "ALL" of your rental expenses. No exceptions. The program can not carry forward your disallowed losses if the program does not know those losses exists. The only way possible for the program to know they exists, is if you actually enter them in the program. Only then can the program carry those losses forward.

martinmarks
Level 10

High earned income/deducting rental expenses

Your unallowed losses will be carried over each year until such time your AGI allows you to deduct it, or when you sell or otherwise dispose of the property in a future year.

Not sell or otherwise dispose.......sell to an unrelated third party in a taxable transaction. 

rachna1
Level 1

High earned income/deducting rental expenses

Thank you. So I should deduct the expenses and pay taxes on the income and if there are losses then those should be rolled over and added to my cost basis when I sell the property. My w2 income cannot be reduced much more than it is. 

martinmarks
Level 10

High earned income/deducting rental expenses

Yes....report all of your rental income and deduct your rental expenses. If you have a loss it will be carried over to the following year....and years.....until the loss can be used.

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