Author Topic: Exceptions to Passive Loss Restrictions  (Read 819 times)

mousebandit

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Exceptions to Passive Loss Restrictions
« on: June 14, 2016, 10:31:32 PM »
I'm trying to better understand our taxes.  I am reading about how you generally cannot offset earned income (W2 wages) with rental real estate losses.  But there seem to be 2 exceptions - the real estate professional exception, and another one if you earn MFJ MAGI < $100k, and have losses < $25k.  Is this right, am I on the right track?  This sounds promising for us.

But, if I am understanding correctly, the MAGI here adds back in your traditional IRA contributions, is that correct?  That very well might throw us over the cliff. 

Thanks! 
MouseBandit

Drifterrider

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Re: Exceptions to Passive Loss Restrictions
« Reply #1 on: June 16, 2016, 12:18:29 PM »
In order to take a loss against your earned income, you need to be active, not passive.

Active is many things.  Did you do work on the house?  Did you hire and supervise and pay people to do work on the house?  Did you advertise, interview applicants, or even pick the tenant.  Those are all active.

So, specifically what losses did you incur and how much work did you do on your rental?

mousebandit

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Re: Exceptions to Passive Loss Restrictions
« Reply #2 on: June 17, 2016, 07:53:20 AM »
We don't even have a rental yet, so this is all just in the pre-planning stages.  We are considering purchasing one, probably next year.  It would be SFH, and we would do any repairs (husband is a contractor) or improvements need to prepare for renting, all management of advertising and dealing with tenants, and probably most repairs or maintenance required after being rented. 

I would anticipate that any losses would be based on depreciation, as we wouldn't get into a rental without good numbers and adequate cash flow. 

Thanks for any tips you can give!