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I have a rental property, but because my income is greater than $150K I cannot claim any losses. if I place the property in an LLC, would I be able to claim the losses?

There is currently no profit being generated on the property at this time.  Is there a tax benefit to adding the property under an LLC and claiming business losses rather than rental property losses?

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Accepted Solutions
ChristinaS
Expert Alumni

I have a rental property, but because my income is greater than $150K I cannot claim any losses. if I place the property in an LLC, would I be able to claim the losses?

No. The only way to bypass the Passive Loss Rules is to be a Real Estate Professional. Owning property in an LLC doesn't make the losses any more deductible.

If you owned the property in a Single Member LLC, your Schedule E and related forms would show no difference whatsoever. If you owned it in a multi-member LLC, the losses would still be rental real estate losses. The same rules.

If you are not a Real Estate Professional, bear in mind that the suspended losses will be released when you sell the property (regardless of your income). You can also use the losses to offset other passive income, such as an investment in a partnership.

The IRS published this handout. May be a few years old, but good info:

https://www.irs.gov/pub/irs-utl/33-Real%20Estate%20Professionals.pdf

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4 Replies
ChristinaS
Expert Alumni

I have a rental property, but because my income is greater than $150K I cannot claim any losses. if I place the property in an LLC, would I be able to claim the losses?

No. The only way to bypass the Passive Loss Rules is to be a Real Estate Professional. Owning property in an LLC doesn't make the losses any more deductible.

If you owned the property in a Single Member LLC, your Schedule E and related forms would show no difference whatsoever. If you owned it in a multi-member LLC, the losses would still be rental real estate losses. The same rules.

If you are not a Real Estate Professional, bear in mind that the suspended losses will be released when you sell the property (regardless of your income). You can also use the losses to offset other passive income, such as an investment in a partnership.

The IRS published this handout. May be a few years old, but good info:

https://www.irs.gov/pub/irs-utl/33-Real%20Estate%20Professionals.pdf

Yez
New Member

I have a rental property, but because my income is greater than $150K I cannot claim any losses. if I place the property in an LLC, would I be able to claim the losses?

Is this 150k limit per person? Like what if a married couple files jointly?

I have a rental property, but because my income is greater than $150K I cannot claim any losses. if I place the property in an LLC, would I be able to claim the losses?

It is per return ... if a married couple files separately you only get 1/2 of the allowance. 

Carl
Level 15

I have a rental property, but because my income is greater than $150K I cannot claim any losses. if I place the property in an LLC, would I be able to claim the losses?

There is currently no profit being generated on the property at this time.

That's normal for long term residential rental property. It is not common for long term residential rental property to ever show a profit in any year "ON PAPER" at tax filing time. Especially if there's a mortgage on the property.

 

Is there a tax benefit to adding the property under an LLC and claiming business losses rather than rental property losses?

No benefit at all. An LLC is nothing more than a pass-through entity. Putting the property into an LLC changes nothing on the tax front. The rental income/expenses still ends up reported on SCH E on your personal 1040 tax return.

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