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How much of a rental income loss can deduct towards ordinary income

I have a rental home that because of major issues I will have a large loss to the home. I actively manage the property. Rental income is 1550 per month and has been rented at this rate for the last 12 months. I make about 50 k a year not including rental income. My deductions towards the home are around 22,500 for this year. These items include, mortgage interest, monthly management fees, up keep and general maintenance activities, property taxes, etc... I have added in all applicable standard deductions without looking at anything frivolous. That DOES NOT include depreciation. Typically my expenses are not this high. My Heating and AC system went out and I had to replace it. I realize that the maximum for rental deductions is 25,000 a year if you actively manage the property at my income level.  I also am 100% the only owner of the home.

All that being said, How much of this 25,000 is deductible from my personal income. It seems that after adding in all these expenses it really does not change my tax return much.

I hate to say it, but at the end of the 2011 year with all these rental expenses I really only brought home 25,000 ordinary income. So should my tax liability be on the 25,000 or should it be 68,500 - 25000 = 43,000 tax liability on ordinary income

With all these deduction items i still have about 7,500 dollars worth of depreciation that I could apply towards the home. I have not depreciated the home since I began renting it in 2008. My depreciation is based upon the price of the home and the 27.5 year depreciation schedule. So, should I add in the depreciation for this year as well.

Beyond the normal here, but the reason I am asking is I have losses in the stock market that I can take by years end. I have about 5000 long term cap gains in divididends and interest for the year which is included in my 50k. I have about 6500 in losses that I can take on the year if i sell. This means I can apply 1500 of these losses to ordinary income. I am trying to look at scenarios to see if I should sell or not.

Please help. I can provide more details if needed.
    If you've used Turbo Tax in the past the amendment process is pretty easy.  

    You tell Turbo Tax you want to amend a return, select the return to amend and save it with a name that will distinguish it from your amended return (e.g., add "as originally filed" to the name) and then go into the file and make any necessary changes.  When you're done you save the file again under a different name (e.g., add "as amended" to the original name), print out the Form 1040X (http://www.irs.gov/pub/irs-pdf/f1040x.pdf) that Turbo Tax prepares, print out any changed or added supporting information, and you're done.  Mail in the Form 1040X (separate envelope for each year) to the IRS.  If you live in a state with income tax Turbo Tax will allow you to amend the state return at the same time.

    These articles

    Amending Your Income Tax Return

    Amend a Return

    give you the gist of it and the detail.

    Tom Young
      As I am reading your question, here's how I figure your Adjusted Gross Income:

      $50,000 Wages +(18,600 Rent - $22,500 Rent expense excluding depreciation) = $46,100.  Throw in depreciation of $7,500 and you're at $38,600.  From that figure you'd deduct your itemized or standard deduction, your exemption(s), etc. to come to taxable income.

      The $25,000 figure you mention is the maximum loss on rental activities (Rental Income minus Rental Expenses) and you should be able to deduct it all ($18,600-$22,500 - $7,500 = -$-11,400.)

      You should understand that taking depreciation is NOT optional; you must take it and you should take it to shelter some of your rental income.  I'd advise you to first amend your 2008, 2009 and 2010 tax returns ASAP in order to get the refunds you are due.

      Your statement about "5000 long term cap gains in divididends and interest" is confusing as they are all separate items of income.  Stocks pay dividends which may, or may not, but taxed at the long-term capital gain rates of 0% or 15%.  Bonds, savings accounts, etc. generate interest that are taxable at ordinary income tax rates.  Long term capital gains come about, typically, by selling securities you've held for more than a year at a gain.  

      Mechanically, you net your capital gains against your capital losses first.  If you have a net loss you can deduct $1,500 or $3,000 (depending on filing status) against all other income.  So, if you really have $5,000 of capital gains and sell stocks for $6,500 in capital losses. then the resulting net loss of $1,500 would all be deductible.  On the other hand, if you really only have $100 of capital gains (and the other $4,900 of that $5,000 is interest and dividends) and sell stocks resulting in $6,500 capital losses the net loss of $6,400 could not all be taken this year.

      Taxes should inform your investing decisions but not dictate them.  If you think that some of the stocks you hold might "pop" in the near future then selling them at a loss would not make much sense as you have to wait 30 days after the sale before you buy them again to avoid the wash sale rules.

      Tom Young
      • So how do I go about amending my old tax returns. As you can see I am pretty new to all of this. What forms do I need to file and what are the steps for filing.

        As for the stock items, I am just going to leave them alone for now. I agree with the possibility of popping. I am also waiting to see if the long term cap gains tax changes or not.
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