The $25,000 Rental Real Estate Deduction Revealed: Are You Doing This?
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- Опубликовано: 19 авг 2023
- Learn the rules and ways you can deduct up to $25,000 of rental real estate passive losses against your wages and other forms of income. This deduction is not very well known.
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Active Participation
A taxpayer is considered to actively participated in a rental real estate activity if the taxpayer, and the taxpayer's spouse if filing joint, owned at least 10% of the rental property and you made management decisions in a significant and bona fide sense. Management decisions include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions.
Material Participation
A trade or business activity is not a passive activity if you materially participated in the activity. Material Participation is defined as the taxpayer being involved in the activity on a basis that is "regular, continuous, and substantial". The IRS has a series of test to indicate if you materially participated or not:
If a Taxpayer actively participates in a rental activity that has a loss, the Taxpayer may be able to deduct up to $25,000 of the loss against their Non Passive Income ($12,500 if Married Filing Separately).
When the Taxpayer’s modified adjusted gross income is $100,000 or less ($50,000 or less if Married Filing Separately), the loss is deductible up to a maximum special allowance of $25,000.
If the Taxpayer’s modified adjusted gross income is more than $100,000 ($50,000 if Married Filing Separately) but less than $150,000 ($75,000 if Married Filing Separately), the special allowance is limited to 50% of the difference between $150,000 ($75,000 if Married Filing Separately) and the Taxpayer’s modified adjusted gross income. This special allowance is calculated on Form 8582.
It is not available to any individuals whose filing status is Married Filing Separate unless the individuals lived apart for all of the year.
NOTE: This is a guide on Real Estate Real Estate Participation being Active or Material and entering it in the TaxSlayer Pro program. This is not intended as tax advice
I nerded out while making this presentation. Hope you all enjoy! structuring your income to take advantage of these deductions will save you thousands of dollars a year in taxes if done properly. If you are seeking professional accounting/tax/advisory services I work with clients all across the United States. Info in the description. Have a great week everyone!
Great tip Mike! Now I need to get my first rental haha
Yes sir! You and me both. The rental tax advantages are way over powered to be honest but I don’t make the rules 😊
Thank you for your information 😊
Always a great educated tip!
Thanks for watching!
Thanks for the informative video. Just subed. Kind of feels as though $150K is a popular threshold throughout the Code to cap tax benefits ... ha!
what if the person had only $14k income w 18k loss due to first year inherited repair?
Mike, this is exactly what I'd like to talk to you about during our strategy and tax planning session. You seem so knowledgeable about this topic and I'm confident you'd help me maximize my rental investment income. Can't wait!
Sounds great! Looking forward to it.
Thank you for this great video. I believe I qualify for what you are talking about. I will double check with my tax preparer. She may already be doing this, and I am embarrassed that I don’t know either way. Question: may I use that loss allocation that you were talking about against unearned income that I am earning off of my investments? Presently, I don’t have any earned wage income.
I need help on the definition of personal use. So...I own a home. First 6 months my extra room was a guest room where guests stayed when visiting. Then i rented it out (fair market). The 527 publication isnt clear on the 14 days/10% personal use disqualifies me from taking advantage of this.
I have owned my rental property for 25 years now...the income limits for deducting losses hasn't changed in all of these years. I am now making over the limits,, yet still have a rental loss on 2 properties of at least $25,000 . When will the income limits be adjusted with inflation ?
Hi Jimmy, these particular AGI limits probably will not be adjusted for inflation. If they ever do I will be surprised. The only way to get around it is to find ways to purposely lower your AGI, but it might not be worth it for feasible to do so.
That's why my tax refund went down significantly when I got married. 🤦🏾♂️
Oh no! Duel income can be great, but has tax drawbacks over a certain AGI level. I feel your pain.
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Thanks Ken!