Q. My spouse and I simply acquired our 2021 tax returns from our preparer, that are on extension. We have been shocked to find that the massive and anticipated rental loss we incurred throughout 2021 offered us with completely no tax profit. Our tax preparer instructed us that none of our rental loss was deductible in 2021 and that the losses can be carried ahead. What are the rules for deducting rental losses?
A. Generally, rental actual property is taken into account a passive exercise. Passive losses are solely deductible to the extent you could have passive revenue. In different phrases, you may offset your passive revenue with passive losses. Unused passive losses are carried ahead till you could have passive revenue to offset otherwise you eliminate the passive exercise releasing up that exercise’s passive loss for a deduction.
However, there’s a restricted exception to the passive exercise loss rules for rental actual property wherein the taxpayer actively participates. An particular person could meet the “lively participation” requirement by taking part within the administration choices (i.e. approving tenants, accumulating rents, offering companies, and many others.) in a big and bona fide sense. This exception permits a deductible lack of as much as $25,000. To be eligible for this exception, you could personal no less than a ten% curiosity of all pursuits within the exercise all year long.
The $25,000 most quantity is decreased, however not under zero, by 50% of the quantity by which your adjusted gross revenue exceeds $100,000. Therefore, the $25,000 is totally phased out when modified adjusted gross revenue reaches $150,000.
I think your modified adjusted gross revenue was above $150,000 final yr creating a complete phase-out of your lively participation rental loss. Your unused 2021 rental losses ought to be carried ahead to a time when you could have certified passive revenue to offset otherwise you eliminate the property.
Please notice that there are particular rules for actual property professionals. Also, the deductibility of rental losses could additional be affected by “at-risk” rules.
Barry Dolowich is a licensed public accountant and proprietor of a full-service accounting and tax observe with Monterey. He could be reached at 831-372-7200. Please deal with any inquiries to Barry at PO Box 710 Monterey, CA 93942 or e-mail: [email protected].
https://www.montereyherald.com/2022/08/23/barry-dolowich-tax-tips-the-rules-for-passive-losses/
