Basics of Tax Deductions

[Kyler J Sloan]

This will be the first year that I get any tax benefits for the work I have done on my first rental, and I wanted to understand the very basics/fundamentals to determine how much I might get back. 

In my profit/loss statement, are the costs which exceed profits deducted from my W-2 Income? 

If so, I should get virtually all of my taxes back this year. 

Note: renovations started in 2020, but could not be reflected last year, because I had not begun renting the place. 

Thanks in advance for your feedback. 

[Michael Plaks]

@David M.

You do not need "hotel-like services", you need "material participation" which is different. Maybe Kyler has it, and maybe he doesn't. No way to tell from what little we know about his situation. 

@Kyler J Sloan

You want "the very basics" - sorry, no such thing in real estate taxation. The only basic answer is "it depends" which is utterly unhelpful. What you call losses are most certainly NOT what counts as losses on your taxes. I assume that you count the cost of your renovations for your losses. Only some portions of that renovation may be deductible in full. The rest has to be slowly deducted over many years in small portions. Your mortgage payment is not deductible in full, only the interest portion. And so on. I wish it was simple but it is not.

And, unless you pass this tricky "material participation" test - you won't have any losses to deduct against your W2. None. Here is some intro to material participation but it's not enough to understand this complex topic: https://www.biggerpockets.com/blog/reduce-your-taxes-with-short-term-rental-properties