Article Date:
August 2015

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Magic Release of Rental Property Tax Deductions with a Home-Office Deduction

Estimated tax tip savings. A $15,000 or $100,000 rental real property passive loss on your books makes you unhappy if you can’t deduct it now. Sure, you might deduct that loss when you sell the property, but how far in the future is that? This article shows you how an office in your home can make those losses deductible right now.


Today’s tax law puts your income and deductions into three silos:



Active income and deductions such as wages, business income, and business expenses


Passive income and expenses


Portfolio income and expenses


Rentals are per se passive with one big exception. If (1) you qualify your rental activities under the “real estate professional” category and (2) you materially participate in those properties, then the losses from those properties qualify for deduction.1 If you meet this exception, then you tear down the silo of real estate passive loss and can deduct that loss against any of your other income.


Tax law uses a number-of-hours test for both the real estate professional classification and the material participation requirement. This is where qualifying your rentals first as a business and then qualifying that business for the home-office deduction looms large. ... Log in to view full article.

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