I have a net loss on a rental property but Turbotax says I can deduct "zero". I'm pretty sure in previous years the deduction was the same as the loss. What's wrong?

[TaxGuyBill]

Did you enter any personal days?

Did you say you "actively participate"?

Is your income over $150,000-ish?

[pain_bandit]

I think no to personal days... I said actively participate... yeah it's slightly over 150k. I googled and I guess that's the problem... thanks...

[TaxGuyBill]

As you found out, if your income is over $150,000, rental losses can unusually only offset other "passive" income.

That amount of the loss that is not allowed will be carried to future years, until it can be used or until the property is sold.

[yekasi]

i have the same question here.

So if the income is over 150k, then what can we do to offset W2 wages from the single member LLC?  I always thought you can offset passive losses against your W2 income so you can pay less tax.

[annieland]

You can claim the losses when you sell and exit the business entirely.  Otherwise it's used to offset rental income.  Not sure if LLC rules are different, but that's how it worked for me with a regular rental.

[PatriciaV]

If you actively participate in the Rental activity, a special IRS rule allows you to offset up to $25,000 of nonpassive income with rental real estate losses. This amount is reduced by 50% of AGI over $100,000 and is totally phased out when AGI reaches $150.00.

You can see this calculation on Form 8582 Part II.

@yeskasi

[yekasi]

Is it worth exploring to filing married seperately as wife is self employed and less than 150k….  While my w2 is above 150k.  

for the rental real estate, its on single person LLC under my wife’s name.  

thanks

[JamesG1]

On IRS form 8582, see Part II - Special Allowance for Rental Real Estate Activities With Active Participation line 5.

Enter $150,000. If married filing separately, see instructions

IRS Instructions for Form 8582, page 10, states:

Part II - Special Allowance for Rental Real Estate Activities With Active Participation 

If your filing status is married filing separately and you lived with your spouse at any time during the year, you are not eligible for the special allowances in Part II. Do not complete Part II.

@yekasi 

[yekasi]

Thanks.  i have a follow up question.  I know this sounds silly but i wanted to clarify.

So on those social media i often see, "you can use depreciation to offset your W2 wages".  Given the rule of above 150k, how is that achieved if you are above it?  

Of its basically only for people if your other W2 job is below 150k? 

[AnnetteB6]

If you do not meet the qualifications for the special allowance to be able to deduct rental losses with active participation, then you must meet the requirements to be considered a real estate professional in order to claim rental losses.  Otherwise, passive rental activity losses will be carried over to future years to offset passive income.

@yekasi