Gross Income Thresholds to claim real estate deductions / losses

[Rick S.]

My wife and I are new to the forum and to real estate investing. We are fortunate to have joint income in the $350k range combined.

We have read a lot of various articles and such but have a BIG question...

Based on our income level, can we still qualify for real estate deductions on our taxes and how about claiming real estate losses? We set up an LLC to act as the property manager to have expenses flow through the LLC.

Thank you all in advance!!

[Jon Holdman]

If your AGI is over $150K, you can't take any of the "special allowance" that lets you offset other income with passive losses from rentals. The exception would be if you're a "real estaet professional". To qualify, you need to spend at least 750 hours a year doing real estate stuff AND spend more time doing that than anything else. So, if you have a full time job, 2080 hours per year, you would need to spend 2081 hours doing real estate stuff.

Now, you can still offset the income from the rentals with the passive losses. What that really means is that you deduce the depreciation from the rental income. And all other expenses, but those are all real cash out the door. So, you may not have much if any taxes from the rental.

If you do end up with a net loss, its "disallowed" and accumulates. You can use it to offset some of the gain when you sell a rental.

All that said, profitable rentals actually produce taxable income, not losses. This idea of passive losses offsetting other income is often used to put some lipstick on a piggy rental.