Loss Deduction and over 150,000 AGI

[Anonymous]

You can always deduct passive losses to the extent of the passive income. If your AGI is over 150 and you have excess passive losses, those are carried forward and not deductible until you sell.

For your rental property, you can deduct losses to the extent of income and once you zero out income, you carryforward losses until your AGI is below 150 and you free up those losses or until you sell the property.

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[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

if your AGI is more than 150K, you can deduct passive losses only to the extent you have passive income i.e. until you get to zero. The excess passive losses are carried forward to future years. In your case, in 2013 you only have passive losses and no passive income. None of the losses are deductible in 2013 but you can cary forward to 2014. Keep in mind, that with depreaciation expense for the rental property, it is likely that your losses will always exceed your renatl income. So you will not be taxable on the rental income since you will reduce it down to zero, but you will not be able to reduce your taxable income for any of the passive losses.

Not trying to make this difficult but just to clarify do you mean to say : So you will not be taxable on the rental income (passive income) since you will reduce it down to zero, but you will not be able to reduce your regular income (any income not passive) for any excess passive losses?

Thanks in advance!

Yes. Your passive losses will never offset your ordinary income I.e. Not passive income since your AGI is over 150K. Your passive losses can only offset passive income.

[Anonymous]

You don't lose the passive losses for this year, you just carry them forward for future years. You can use this to offset passive gains for future years or when you sell the rental property many years from now.

For example, say you have a $10,000 loss this year on the rental property from depreciation and such. For the next 2 years, you have a $5,000 profit each year. You won't pay taxes on that income because you can use the loss from the previous year to offset it.

What is most likely, however, is that with depreciation you will show a paper loss almost every single year on your rental property and won't ever pay taxes on rental income. 20 years from now when you sell the house you will have a ton of carried forward loss, maybe $100,000 or more. When you sell the house, you have to recapture the depreciation (meaning it reduces the cost basis for your house) and you will show a profit from the sale of the house. You will use the $100,000+ carried forward loss to reduce the capital gains on the sale of the property.

[Anonymous]

Anonymous wrote:You don't lose the passive losses for this year, you just carry them forward for future years. You can use this to offset passive gains for future years or when you sell the rental property many years from now.

For example, say you have a $10,000 loss this year on the rental property from depreciation and such. For the next 2 years, you have a $5,000 profit each year. You won't pay taxes on that income because you can use the loss from the previous year to offset it.

What is most likely, however, is that with depreciation you will show a paper loss almost every single year on your rental property and won't ever pay taxes on rental income. 20 years from now when you sell the house you will have a ton of carried forward loss, maybe $100,000 or more. When you sell the house, you have to recapture the depreciation (meaning it reduces the cost basis for your house) and you will show a profit from the sale of the house. You will use the $100,000+ carried forward loss to reduce the capital gains on the sale of the property.

Thank you so much! I am so grateful that many who is on this forum are happy to help others!