Deductions greater than Income

[David Howarth]

If my deductions are greater than the income generated from my property, how does that effect my tax liability?

Does it decrease the total amount of taxes owed? Or does my tax liability stay the same?

[Jon Holdman]

J Scott is correct, though there is an additional limitation. If your AGI is over $100K (whether married filing jointly or single), that $25K special allowance starts phasing out. Its zero at $150 AGI. If you can't take the passive loss, you carry it forward and take it when you sell a property, any property.

Keep in mind part of the expenses is depreciation. When you sell, you owe depreciation recapture tax on the amount of depreciation taken, or that could have been taken, whichever is greater.