Tax Q&A: Why can't I deduct my rental property losses?

Tax Q&A: Why can't I deduct my rental property losses?

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Tax Q&A: Why can't I deduct my rental property losses?

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by John Waggoner, USA TODAY

NWCN.com

Posted on April 1, 2014 at 8:13 AM

Updated Tuesday, Apr 1 at 8:13 AM

With the April 15 tax deadline fast approaching, you probably have questions. Fortunately, we have answers. Every day until April 15, members of the American Institute of Certified Public Accountants have agreed to answer selected tax questions fromUSA TODAY readers. Submit your questions to jwaggoner@usatoday.com.

Q. My tax preparer tells me that since my adjusted gross income is above 150k that I cannot take the mileage and loss from my rental property business. Is this correct?

A. That is generally correct -- for most taxpayers. Rental activities are considered "passive" activities and a loss on a passive activity is not deductible against non-passive income, such as wages. TA special rule lets you deduct up to $25,000 of losses from rental real estate in which you actively participate. The $25,000 deduction is phased out when your modified adjusted gross income is between $100,000 and $150,000, resulting in no deduction above $150,000 (for a married filing joint return). See IRS Publication 925 for additional information.

There is a group of taxpayers who are allowed to fully deduct losses from rental real estate. These are the people who are considered real estate professionals. To qualify, you (or your spouse), need to have more than one-half of your personal services, and more than 750 hours, in various real estate activities in which you materially participate. See IRS Publications 527and 925 for a detailed discussion of these requirements.

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While you may not be able to deduct your rental loss this year, it is still important to report the loss on your tax return. Any unused loss will be carried forward to your next tax year for possible deduction, or it will ultimately be allowed as a deduction when the property is sold.

David Stolz, CPA/PFS, CFP, Takoma, Wash.

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