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Tax Talk by George Saenz • Bankrate.com
For most folks at your level of income, a loss from rental property would not be a big benefit income tax-wise. Losses from
rental activities for most individuals are not allowed to offset other income such as wages if their adjusted gross income
exceeds $150,000. A significant exception exists for a real estate professional such as you.
In figuring your profit from the property, you're allowed a deduction of your cost at roughly 4 percent per year. On a $200,000
property this means you have an approximate $8,000 tax deduction that does not come out of your pocket.
The other side of the coin is that although you're losing for tax purposes, your property is usually appreciating in value
annually. This appreciation is not taxed until you sell the property and you can defer the tax even then by doing a like-kind
exchange. In addition, as the property appreciates, you can borrow against it tax-free and buy more property.
For most folks at your level of income, a loss from rental property would not be a big benefit income tax-wise. Losses from
rental activities for most individuals are not allowed to offset other income such as wages if their adjusted gross income
exceeds $150,000. A significant exception exists for a real estate professional such as you.
In figuring your profit from the property, you're allowed a deduction of your cost at roughly 4 percent per year. On a $200,000
property this means you have an approximate $8,000 tax deduction that does not come out of your pocket.
The other side of the coin is that although you're losing for tax purposes, your property is usually appreciating in value
annually. This appreciation is not taxed until you sell the property and you can defer the tax even then by doing a like-kind
exchange. In addition, as the property appreciates, you can borrow against it tax-free and buy more property.
Tax savings from rental property losses
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