2021 Tax year - When I enter expense for my Rental property it reduces my refund.

[radhakrs]

I have a passive carry over loss on my rental property. When entering rental income and expenses for the current year, as I enter the expenses (Property tax, insurance, maintenance/repair etc.,) for the rental property, the federal refund keeps decreasing. If I back out the expenses, then federal refund increases. Even if there is a limit due to AGI, the refund should not decrease. The loss from the rental activity should get added to prior year passive carry over loss. Not sure if anyone else has similar issues. 

[DawnC]

Do you qualify for Earned Income Credit on Line 27a of Form 1040?    Or you may have some other credit that is dependent upon your AGI that is changing more than your tax liability....   

[radhakrs]

I don't qualify for EIC.

To explain the issue that I am encountering a bit more, if after entering my rental income if the federal refund is say, $1500, as I enter rental expenses (Property tax, Insurance, Repair etc.,), the federal refund keeps decreasing. I would have expected it to increase as the net profit from rental is decreasing with each expense being added. 

If I take out all expenses, it resets back to $1500. Actually, in my case, when all said and done, I have a net loss from the rental. I reviewed Schedule E as well but could not see anything out of the ordinary. It shows the passive carryover loss from the prior year properly.  Thanks for any advise. 

[HelenC12]

One possible reason is that some income-based credits such as the earned income credit will decrease when you enter more rental expenses and decrease your taxable income.

• Please note that the law requires you to deduct all allowable expenses and not leave out some to increase your income-based credits. Source: MinhT1

Another area that is affected by the amount of income on your rental property is the Qualified Business Income Deduction (QBI). The Qualified Business Income Deduction takes the qualified income and multiplies the amount by 30%. 

• As your Rental Income decreases with the additional expenses, the QBI is decreased. As the QBI is decreased your taxable income and income tax amount will increase. The greater the taxes the lower the refund. Source: KurtL1