Real Estate Investors Tax Strategies - AVOID PASSIVE LOSS LIMITATIONS...
Deduct Unlimited Property Tax Losses Even if Over $25,000 or Your Income is Over $150,000 by Being a Documented Real Estate Professional.
With the aforementioned non-cash componentizing deductions piling up, your properties are going to be throwing off paper tax losses which you want to fully deduct against your other income. Except for $25,000 of losses, rental property losses are subject to passive loss limitations. This means real estate investors cannot deduct property tax losses against non-passive income such as salaries, business income, gains, IRA distributions, etc. If the investor’s adjusted gross income (AGI) is above $150,000 they will not even be allowed the $25,000 exception for deducting such losses.
Moreover, even if the investor is eligible for the above exception, but has over $25,000 in property losses, the excess over the $25,000 is still subject to the limitations. Being subject to these limitations means the investor cannot currently deduct the losses in the year incurred. The losses are “suspended” and must be carried forward until the property is sold at a gain. The savings from the losses are also delayed as well as the investment use of such savings.
What to do: To avoid being subject to these limitations, the investor must document at least 751 hours (or an average of about 14-1/2 hours a week) with the majority of their time in the real property business. A “real property trade or business” is defined as any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing or brokerage trade or business.
This includes real estate investors who do rentals, management, rehabbing, wholesaling, retailing, foreclosures, short sales, self-storage and other type’s real estate activities. With the right planning and documentation even those with full time jobs can meet these requirements.
Do this and fully deduct your property tax loses without limit, save a ton of taxes, and increase your cash flow every year!