Losing deductions due to income cap

[Colleen Ferrari]

Hi-- this is my first post to the group. I joined a few days ago so please forgive me if I do this wrong. 

I read many articles and books on investing in real estate. I have owned a few rentals for 20 years or more, and have a tax question. I keep hearing how "millionaire real estate investors" take advantage of the depreciation and maintenance/repair costs on properties, and wonder why have they not hit the income cap on deductions?? 

We lost some of our deductions when our personal earned income hit $150,000 and lost all our deductions on real estate when we hit the income level of $180,000. Our tax person says we can recoup those deductions in later years when our income goes down. Here is the question-- Is there a way to separate your earned income from your real estate income so that you still get the deductions from your real estate investment holdings? Is that a worthwhile path to explore? Should we form an LLC? Or should we satisfy ourselves with the fact that we have a small income stream with the properties and equity is building? Are we missing something here?

Thank you,

Colleen

[Marco G.]

Colleen Ferrari - those "millionaire investors" are real estate professionals under the tax code, and don't have the $25k Passive Activity Loss limit you are running into. I'm guessing you have substantial W-2 income from your occupation from your post, and therefore your real estate investments are a passive activities.

I was typing an explanation of that but this article provides a very thorough explanation with examples of how to qualify: http://www.forbes.com/sites/anthonynitti/2014/07/09/tax-geek-tuesday-the-irs-finally-figures-out-the-real-estate-professional-rules/#36a9e77c4760

Good luck.