Need help with tax problem

[Bryan DeSellem]

My wife and I are new to real estate investing. We recently bought a duplex and we are currently having it renovated. We will have a fair amount tied up in renovations when we are done, somewhere in the ball park or $65k, we only paid $35k for it though. I recently bought a book to read up on landlord tax laws, “NOLO’s Every Landlord’s Tax Deduction Guide”. In there I read that if you make over $150k a year you CANNOT DEDUCT ANYTHING RELATED TO YOUR RENTALS. This is obviously a huge blow to my entire real estate investing plan. So one question I have is does anyone know any tips to get around this unfortunate law? I have an LLC that “owns” the property and once the property is rented I don’t see making more than $15k a year from it. It sounds like I can write off my losses against that but that won’t be until next year or the year after. How long can I carry losses over?

[Eamonn McElroy]

The book is referring to the passive activity loss limitations imposed by Sec 469.

You'll still be able to use expenses to offset revenue, you just won't be able to use a tax loss on the rental to offset other taxable income if you're above $150k in AGI.  They carry forward indefinitely until you have passive income to offset or you dispose of the 'activity' (i.e. the property).

If you're below $150k in AGI, you may be able to use some or all of the tax loss from the rental to offset other taxable income if you can substantiate active participation.

"So one question I have is does anyone know any tips to get around this unfortunate law?"

If you or your spouse qualify as a 'real estate professional' and meet material participation regarding the property, the tax losses become non-passive and can offset other taxable income.

Good convo to have with your tax CPA/EA who can consider your facts, circumstances, and goals.