Senior Financial Planner Matt Balderston, CFP® explains the different circumstances under which you can deduct the losses on your rental property, and the amounts of real estate losses that are deductible depending on your adjusted gross income.
We received a question on whether or not you can deduct rental real estate. Well, that depends on several factors, the most important of which is what your adjusted gross income is. If your adjusted gross income is less than $100,000, then you can write off up to $25,000 of rental losses. If your income is between $100,000 and $150,000, then you lose one dollar of that deduction for every two dollars you earn. Once you’re over $150,000, you don’t get to write off any of it. You don’t, however, lose those losses – they do stay on your tax return, so if in the future your income comes down, you can use them, or when you sell the property, you can use anything that’s banked over the previous years. One other way to get additional write-offs is if you’re considered a real estate professional. Now, that doesn’t mean that you work in the mortgage industry or are a realtor or anything like that. It just means – it’s an IRS definition that says that you have at least 750 hours and more than 50 percent of your professional time working in your rental properties, which could be screening potential tenants, or doing maintenance, any number of things like that. If that’s the case, then you can write off everything. If you have other questions or want more information, you can go to our website at PureFinancial.com.