How Tax Deductions Work For Rental Properties & Mistakes To Avoid
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- Опубліковано 19 чер 2024
- If you are seeking a New CPA:
► My website: www.mikekellycpa.com
► I have 15 years of experience in public accounting. I operate out of Modesto CA.
► My primary services include but are not limited to, Accounting, Financial Statement preparation, taxes, business coaching, tax planning, and consulting.
► The initial consultation to assess your needs is at no cost, however, please note I cannot offer specific tax or business advice until we are engaged to work together. If you are simply looking for consulting my consultation rate is $160/hr.
► The number of new clients I can currently onboard is limited. When you reach out I will let you know if I have capacity.
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
very helpful! thank you.
This is great thank you for taking your time and helping all of us.
My pleasure! The information is not easily found :)
Good video. So many people have rental properties and Schedule E questions. Thanks!
Hi Bill! Thanks. A huge percent of my client base are real estate investors
Always great advice and information!
Thanks for watching!
Glad to see you make videos again. Would you consider the topic of how to minimize real estate capital gain tax and/or depreciation recapture? Thx
Great ideas! I will keep that in the back of my mind.
Thank you ☺️
My pleasure! Thanks for watching 😊
Great video ❤
Glad you liked it!! Thanks Annie :)
Could you do a video about form 3115 for missed depreciation for rental properties?
Rental property deductions in Ohio.
1. Below fair rental value.
Deduction. Yes
2. 4 months with no rental Income 2023.
Deduction. Yes
3. Repairs / Supplies to Sell Unoccupied Property 2024.
Deduction. Yes
4. New Roof February 2023?
*** unsure if it's accurate deduction status ***
5. Should we get most of full 9600 of roof replacement vs. Depreciation? As to me it makes no sense that we'll take an almost 9600 loss? I think as a novice self tax preparer prior to this selling of property venture...
90% deduction for roof at best?
Yes or No?
6. The capital gains should balance out. Approximately 30k minimum after Payoff/ expenses. etc...
I think I've covered most inquiries here.
7. Utilities paid Unoccupied.
Deduction. Yes
Appreciate your knowledge and sharing of your time. Please correct by my numbers if I'm a bit inaccurate of my explanations.
Thanks,
Bill 👍
Have a safe and blessed New Years.
Hi , I am sorry, but I am not able to give specific tax advice over UA-cam as we are not engaged to work together. You would need to become a client. If you would like to book a consultation my hourly rate is currently $160 per hour. You can find how to contact me through my accounting practice at www.mikekellycpa.com. Thank you
Mike
Can you go from having passive loss on my rental, To an active loss down the road say 2-3 years
Airbnb is active if you are managing it
I'm repairing my roof on a rental property. It's going to cost $20,000 plus to replace the waterproof membrane and using existing tiles. I also have solar panels, so the cost is even more to remove the panels and reinstall it. The roof repair is guaranteed for 10 years. It sounds like I need to depreciate over 10 years. I would like to take the full cost of repairs in one year. What are your thoughts?
New subscriber here. Good content. Very informative. How about if one decides to sell the rental property? Do I have to add the depreciation back and pay capital gains? If so what part of the depreciation? Is it just the building and improvements? Love to have a video about this.
Hi, Thanks for the sub! Ya that is a bit more complex - Probably need a CPA for that one. In general, yes you may have to capture a portion of the depreciation taken as section 1250 gain in addition to normal capital gain taxes.
So only someone making under 150k would be able to take active losses agaibst s rental if their not a real estate pro and/or isnt using their properrty as a short term rental?
I have rented out a house that i lived in and owned for 38 years prior to turning into a rental. This is longer than the 27.5 year standard term of depreciation. How could I approach developing a basis for depreciation? Could factors such as past repairs and renovations be pertinent?
Sadly not many can even afford Real Estate these days so will have to just keep buying REITs in the mean time!
So true it is very sad most have not been cutout of the housing market. Reits and high yielding investments = the new rental property
Hi Mike, thanks for educating the masses.
this is something off the topic. But what about taxes on money gifted from parents if it is under $17800. The IRS website does say we don't need to report and pay tax. Also, can we break down the gift money per year in order to keep it under the stated threshold
Thanks
My pleasure! And the answer is yes. If you can spread out a gift over multiple years that is the best way to avoid a gift tax filing. For 99.999% of people there will never be a tax on a gift, but there is a reporting requirement if the gift is above the threshold amount.
@@MoneyandLifeTV appreciate your prompt response..Also, I would really appreciate if you could make an informative video on CPAs search like Dos and don't s of hiring a one... Like any other profession, there are people out there who are just waiting to rip you off🥲
can passive losses carried forward be taken against capital gains if the property is sold?
🔥🔥🔥
Am I active if I manage my STR listing? I clean it after it’s been rented. I do Any repairs needed. Property is 2 hours away so I travel to it to do these things. But I also have a remote job. Would I be considered active?
How many consecutive years of a loss on a property be allowed by the IRS?
Virtually unlimited. I have never seen irs challenge it. However if losses were excessive and it took a persons tax liability to 0 then they likely would challenge it if was happening for multiple years in a row. I have seen some businesses and farms get challenged for too many years of consecutive losses.
Crazy Laws... Tax should be Simple. Just Sales tax on Products and Services. that's enough
Can you use your passive income to qualify for a mortgage loan?
Hi William, Generally yes, because a lender would look at this as part of your normal income (generally speaking).
Yes but you can’t write off too much or your DTI will be too high. They’re supposed to add back in things like taxes a depreciation
if I manage my rental property would I be considered active?
Yes you can. idk what he’s talking about being a real estate person
an passive losses carried forward on property A be taken against capital gains on property B, if the property B is sold?
can
Yes. When you sell a rental property, any suspended passive losses you have in other properties can be used to offset the capital gains in that property.
'Promo sm' 👀