Why can’t I claim my rental loss this year?

May 13, 2015 by Dave Du Val, EA
Roof on brick house

Hey Dave,

The expenses I paid out on my rental were $12,000 more than my rental income, yet my tax return shows a deductible rental loss of zero. Why can’t I claim my rental loss?

Ray

 

Ray,

Losses from most rental activities are considered passive losses, and as passive losses they are generally not allowed in the current tax year, but are carried forward until such time as there is income from passive activities to offset the loss, or until the rental property that generated the losses is sold in a taxable transaction. There is an exception to this if the taxpayer is an “active” participant in a rental activity, in that up to $25,000 in passive losses may be allowed each year. This $25,000 maximum is phased out for taxpayers with adjusted gross incomes (AGI) of between $100,000 and $150,000, with the maximum allowed deduction being reduced by $1 for every $2 increase in AGI. This special $25,000 allowance is allowed for all filing statuses except Married Filing Separately, to which special rules apply. For married taxpayers filing separately, no special allowance is allowed at all, unless the taxpayer lived apart from their spouse all year, in which case the maximum allowance is reduced to $12,500 (phased out at AGIs between $50,000 and $75,000).

Deductibly Yours,

Dave

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