Owning real estate has big tax advantages for the homeowner, but what if the owner becomes a landlord? It used to be very lucrative be a landlord for as many properties as the banks would let you. Through liberal tax laws, the government encouraged it. Over the years, however, tax laws have changed and it's not as easy nor are the tax advantages as attractive as they used to be. But they are still there. If you are forced to rent your property through professional management or thinking of managing it yourself, here are the general guidelines.
According to Lisa Feinman, CPA: "Keep in mind that there are exceptions to everything, but in general, if you own a handful of rental properties and your Adjusted Gross Income (AGI) is less than $150K, you can take a loss on those properties of up to $25K. This would reduce your AGI by $25K.
If your AGI is higher than $150K, you're out of luck. Rental activity is considered passive. The only way you can deduct the passive losses in this situation is if it truly is a business, you spend more than 750 hours per year & 50% of your "employed" time on real estate activities, and therefore qualify as a "real estate professional". The "real estate professional" designation allows you to deduct all of your passive losses against AGI, even if they exceed $25K.
So, in other words, if you make over $150k and just dabble in owning some properties, there is no current benefit to your AGI. The benefit comes when you sell the property and all of your passive losses would offset any capital gain and/or create a capital loss on your tax return at that point in time.
77th Meridian, LLC offers professional property management for residential property in Anne Arundel and surrounding counties. Visit us at www.77thMeridian.com.