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Article Date:
February 2015

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Deduct More of Your Rental Property Losses by Qualifying as a Real Estate Professional—Even If You Don’t Work in Real Estate!

Estimated tax tip savings. If you own rental real estate, you can generate deductions of tens of thousands of dollars to offset other income. If you earn $200,000 from your business and generate $40,000 of losses from rental real estate, this strategy could allow you to pay tax on only $160,000. At a 25 percent tax rate, you’d save $10,000 this year.


It used to be you could invest in rental real estate and use the massive tax losses to offset income you earned from other sources, such as your business. But then Congress stormed in and made these magical tax benefits more difficult to obtain.


But listen—even though it’s more difficult now than it once was to immediately harvest your tax losses from rental real estate, it’s still possible. Depending on how much time you spend on managing your real estate investments, you may just have to jump through a few more hoops to make those losses usable.


Good news: Rental real estate churns out big deductions each year for 1) property taxes, 2) repairs and maintenance, 3) property insurance, and 4) depreciation. (In general, this means you deduct the cost of the building over 27.5 years for residential rentals and 39 years for commercial rentals.)


For many rental property owners, these expenses far exceed the rental income they receive on the property, creating nice, hefty tax losses. Unfortunately, Congress put up a nasty barrier between you and your rental property losses called the passive loss rules, which reduces the amount you can deduct in any given year. However, you can legally get around these limitations by ... Log in to view full article.

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