Roof Replaced on Rental Property - insurance covered minus deductible

[chapinreyes]

Hello,

There was a storm that came through and the roof was damaged.  The insurance, came and it was covered and the only thing I paid was the deductible.  Is the deductible something i can write off and where would that fall under in Turbo Tax?  See the summary below - where would the roof deductible be listed?

[Mike9241]

I would take a deduction as repairs for the deductible.

[chapinreyes]

Hello,

I found out what my deductible is, so I should just add that to my total repair expenses correct?

[PattiF]

Yes, the deductible that you paid would be added to the repairs in the repair expense category.

[chapinreyes]

Hello PattiF,

So it looks like with those repairs Turbo Tax shows me a Net loss amount and also that zero is deductible.  Is this something I can deduct next year since I cannot deduct it this year?  Or how does that work?

[PattiF]

Although your losses are not deductible this year, they will carry forward to future years.  They will continue to carry forward until (a) you have passive income (such as a profit from the rentals) for the losses to be used against or (b) you sell the property in a "fully taxable transaction".

From @Carl:

Rental income is passive income. That means you don't go out and physically "do something" on a recurring bases to actually "earn" it. All you do is "sit there" and collect rental income. That's it. Likewise, rental expenses are passive also. Therefore, your passive rental expenses can only be deducted from the passive rental income. Once the expenses get the taxable income to zero, that's it. You're done. Any excess expenses are automatically carried over to the next year.

It is "EXTREMELY COMMON" for rental property to "ALWAYS" have a loss every single year - especially if there's a mortgage on the property. If you take the common deductions of mortgage interest, property insurance, property taxes, and the depreciation you are required to take by law, those four items alone will exceed the total rental income you receive for the year. Add to that the other rental expeness you're allowed (maintenance, cleaning, repairs, etc.) and you're practically "guaranteed" to operate at a loss *on paper* every single year.

So with each passing year your carry over losses will continue to accumulate, increase and grow. That's fine, it's expected and absolutely normal.  You can't realize all those losses until the year you actually sell the property. Only in the year you sell the property can you deduct your accumulated losses from other "ordinary" income. So until then, your passive carry over losses continue to grow and continue to be carried over each and every year.

@chapinreyes

[Carl]

Actually, it's not a repair expense, and it's not as simple as one may think. Per IRS Publication 527 page 8 at https://www.irs.gov/pub/irs-pdf/p527.pdf

Decreases to basis. You must decrease the basis of your property by any items that represent a return of your cost. These include the following.
• Insurance or other payment you receive as the result of a casualty or theft loss.
• Casualty loss not covered by insurance for which you took a deduction.

There are several ways to deal with this in TurboTax that will make the numbers work out "in the wash". But claiming your deductible as a repair expense isn't one of them.

[Anonymous_]

I agree with @Mike9241's statement: "I would take a deduction as repairs for the deductible".

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@PattiF wrote:

From @Carl:

Rental income is passive income. That means you don't go out and physically "do something" on a recurring bases to actually "earn" it. All you do is "sit there" and collect rental income.

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That is a layperson's definition of "passive income" when actually, for federal income tax purposes, "passive income" (from a passive activity) is a term of art.

Federal income tax law defines "passive income" generally as income from a passive activity which, in turn, is defined in Section 469 of the Code. 

Otherwise, there are three general types of income; active, passive, and portfolio and it should be noted that "you don't go out and physically "do something" on a recurring bases to actually "earn" it" applies to portfolio income, which includes dividends, interest, royalties, capital gains, et al. Further, depending upon the nature of the rental activity, the income could be classified as nonpassive.