Persistent Rental Property Losses

[Arjun K.]

I am trying to understand the implications of the IRS not-for-profit rule.

Let us assume:

- I have a group of rentals

- Each of these rentals shows losses for Tax purposes (rental income less: property taxes, maintenance/insurance/operating expense, interest, and depreciation).

- It is expected all of these rentals will show these losses for 15 years

My questions are:

- Is the only repercussion of these losses that that I cannot deduce my rental business losses against my ordinary income? IRS will have no other problem with me?

- In what circumstance, if any, can I deduct theses losses against my ordinary income?

Thank you

[Steven Hamilton II]

Originally posted by Arjun K.:

I am trying to understand the implications of the IRS not-for-profit rule.
Let us assume:

- I have a group of rentals

- Each of these rentals shows losses for Tax purposes (rental income less: property taxes, maintenance/insurance/operating expense, interest, and depreciation).

- It is expected all of these rentals will show these losses for 15 years

My questions are:

- Is the only repercussion of these losses that that I cannot deduce my rental business losses against my ordinary income? IRS will have no other problem with me?

- In what circumstance, if any, can I deduct theses losses against my ordinary income?

Thank you

@Arjun Kumar ,

If you are thinking of the losses for more than 3/5 years it is a hobby. That is not typically applied to rental property.

That will depend upon your goal. Typically rental real estate is not looked at in this way. Add back depreciation and does it show a loss or a profit?

Lose your 25k allowance $0.50 for every dollar your income is over 100k.

Once this threshold is passed you cannot deduct your losses in the current year. They will be carried over as a "passive activity loss carryover". That is unless you qualify as a real estate professional.

That means you spend more than 750 hours in the trade or business of real estate. If working for someone else you must be at least 5% shareholder. Also, you cannot spend more time on any other activity.