Most rental owners can claim tax losses, even when they are making a profit. But it totally depends on how much money you make, and whether or not your rental activity is considered a passive activity.
Losses from passive activity can only be used to offset income from other passive activity, so you aren't able to deduct entire losses in this case. Many times your losses must be carried forward. If you materially participate in your rental activity, then your rental income is not considered to be coming from a passive activity, and you are able to deduct unlimited losses. This is true for most real estate professionals who pass the "material participation test." The majority of real estate investors however are not real estate professionals, so the income from real estate is considered passive income. As a result: You can deduct up to $25,000 of rental losses on your tax return if your adjusted gross income is less than $150,000. If your adjusted gross income is less than $100,000, you can deduct the full $25,000. If your adjusted gross income is between $100,000 and $150,000, you can deduct up to ($150,000 - Your Income)/2. So if your AGI is $120,000, you can deduct up to $15,000 (150k - 120 k)/2. When your adjusted gross income exceeds $150,000, you are not permitted to report a loss from rental activity. The only way to avoid this limitation is if you become a real estate professional. If rental losses exceed the deduction limit, the passive activity loss is carried forward for a maximum of 15 years until the loss can be deducted. If you sell the property, you can deduct the carryover loss from the gain of the sale. To learn more about deductible loss and how it affects your Schedule E, take a look at RealTaxTips.com <http://www.trexglobal.com> . It's a forum for real estate investors to learn how others are saving money on their real estate investments, and it's an easy way to get prepared for taxes. Community Relations TReXGlobal.com <http://www.trexglobal.com> Simple FREE to Use Web Tools <http://www.trexglobal.com> for Real Estate Investors
