Re: Income reduction from rental property

From: ldavis@ix.netcom.com (Lynn R Davis)
Subject: Re: Income reduction from rental property
Date: Mon, 3 Aug 1998 19:01:43 -0500 (CDT)

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>
>Date: Mon, 3 Aug 1998 13:09:37 -0400
>From: Rick.Schafer@bdk.com
>Subject: RE: Income reduction from rental property
>
>To make a small correction to this discussion...
>
>>
>trinh@anywhereusa.com asked:
>>           
>>
>>I bought a house recently, and am now living with my parent 
>>and relatives.  If I move out (may be out of state) say, for 
>>a new job, I will most likely need to pay at least $300 out 
>>of my pocket each month to cover the mortgage because they 
>>can't afford it. I don't think i can kick them out without 
>>breaking the relationships, so this isn't an option for me.
>>
>>My questions are:
>>1. Will I still be eligible for getting a tax break if I
>>   don't live there ?
>
>Lynn R. Davis responded:
>
>>>Yes, and you have two choices.  You can charge those who do live there 
>>>"rent" (which you have to recognize as income) and then take ALL 
>>>expenses (including insurance, depreciation, repairs) as deductions 
>>>(and possibly have a net loss to charge against other income).
>
>[> ]  My comment.  Unfortunately, you cannot charge your rental income loss
>against non-rental income.  This I understand was taken away in the Reagan
>years.  If you own and rent out 1 property, and take your expenses (including
>insurance, depreciation, repairs, advertising, mileage, agency fees, lawn care,
>etc) as deductions, you can only go down to $0 rental income.  Your regular
>income (from your job, other investments etc) cannot be reduced by a rental
>loss.  If you own more than 1 rental property, you can charge a loss on 1
>against a gain on the other.  In other words, you can look at your rentals as a
>pool, and take all your income and all your losses together.  But if you have a
>net loss, you cannot apply that loss to income from a non-rental source.
>
>Standard disclaimer: I'm a tax payer -- not a tax advisor.
>
>
>Rick Schafer

Lynn Davis:

Rick, it is good that you are a payer and NOT an advisor, as MOST people CAN if 
they do it right deduct rental losses against other income.

First, they must "actively manage" the property themselves.  For example, they 
must select the renters, and carry out other landlord responsibilities. 

Second, they must earn less than $150,000 in other income.

Then, they can use a rental loss to offset other income up to a limit of $25,000 
(if your adjusted AGI is less than $100,000).  The $25,000 limit decreases by $1 
for each $2 your AGI goes above $100,000.

Suppose that the person in question would not be losing more than $10,000 per 
year, he can then earn up to $130,000 in other income and take full advantage of 
his $10,000 loss.

Even most tax PAYERS can tell you that - IF they have a rental property as part of 
their tax return AND do their own taxes.

If you have a loss one year that you cannot take advantage of, any remainder gets 
carried over to future years to whenever you qualify (or sell the property in 
question).

This is all in the instructions for Schedule E and related schedules.

Lynn Davis
Fremont, California



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