Can expenses be carried over to next tax year?

Question

Hello All, I purchased my first rental property in Houston on August 2017. I listed it for rent right after closing.

House required painting and many small repairs (not improvements/capex from what I read from IRS rules) I was going to rent it out and do the repairs/painting later, but since I could not find a tenant immediately, I went ahead and hired contractors and got the painting and other repairs done while my property was still advertised for rent.

I was able to rent it out only on November 2017 and have an income of around $2500 for the year.

My painting and other repairs costed me around $4000

Questions:

• Can I use part of my expenses ($2500 out of $4000) this year avoid taxes and use the rent of my expenses ($1500) in next years filing? In other words, can you carryover expenses to next year.
• If answer to my first question is no, can I show (income minus expense) $1500 as loss this year and deduct it from my income in 2018?
• If I had another property, can I combine income from both properties and deduct expenses from both properties? In other words, is there a need to separate income/expense for each property or can it all be combined?

Some additional details if that matters: Property is located in Houston, purchase price is around 100K, rent is around $1250 and its not transferred to LLC yet.

Thank you for your time.

Michael Plaks · Answer

@Ansari A.

Congrats on your first investment property, neighbor!

I will first try to answer your 3 questions and then clarify why I said "try to"

1. No, you can never split expenses between two years. Expenses always count when paid.

2. Yes. The loss may be deductible in 2017 or, if not, carried forward to 2018.

3. Yes and no. You always must separate income and expenses by property. They are reported separately on the tax return. However, if one property has net (after expenses) income, and the other has net loss - they end up offsetting each other.

From your questions, it appears that you did some reading, but you do not yet have a good "big picture" understanding of how it works with rentals. I recommend getting with a tax accountant specializing in real estate.

Michael Plaks · Answer

@Ansari A.

Please re-read my earlier answer on this thread, from 6 months ago.

You enter your $4,000 in 2017. If your situation allows it, the software will deduct the resulting loss in 2017, against your W2 income. If it is not possible, the software will automatically designate the loss as carry-forward and complete Form 8582 that will be sent to the IRS when you eFile. You don't need to do anything extra manually.

Ansari A. · Answer

I am using Taxact online, I don't see any worksheets produced by the software. Is it required to send the worksheet along with the return?

Jim T. · Answer

@Ansari A.

You should enter the entire loss for 2017. If you are doing the taxes by hand, look here https://www.irs.gov/forms-pubs/about-form-8582-pas...

There are worksheets that must be filled in and sent with your return that will indicate your total loss, the amount allowed this year, and the amount suspended.

If you are using tax software, I assume it will keep track of it all.

Ansari A. · Answer

Thanks you all.

For 2017 taxes, should I enter expenses for 2017 as $2500 (enough to offset income for the year) and in 2018 use the losses of $1500 or should I enter the actual expense of $4000 in 2017?

Mark Bookhagen · Answer

"The IRS classifies renting out property as a passive activity unless you're a full-time real-estate professional. You can't deduct passive losses from non-passive income, only from other passive income. If you have a couple of rentals and one of them is in the red, for instance, you can write off the loss from one house against the gain from the other. If the grand total of all your passive activity is a loss, you have to carry it forward." Source: http://homeguides.sfgate.com/can-carry-forward-losses-rental-property-72261.html

Can expenses be carried over to next tax year?

Can expenses be carried over to next tax year?

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