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Claiming real estate losses
Dear
Tax Talk:
Is there a limit to how many years a loss can be claimed on real
estate or income property?
Thanks,
Yolanda
Dear
Yolanda:
Generally, real
estate investments always operate at a loss. While the Internal
Revenue Service has rules that require you to be engaged in an activity
for profit to claim losses, real estate is viewed differently.
Most real property investors
know that in the long-term there is potential for profit as a result
of appreciation in value. When the current losses are viewed in
connection with the increase in value, you can probably overcome
any challenge the IRS may assert against the profit potential.
Of course this assumes that
you have the property rented at a fair value and that you are not
renting the property to a family member or friend at a reduced rate.
Tax
treatment of a loan secured by rental property
Dear
Tax Talk:
Is the interest on a loan for a car secured by rental property deductible?
Thanks,
Jane
Dear Jane:
While it is
true that you can take out a home equity loan on your first or second
home and deduct the interest within certain limits, this does not
apply to borrowings on a rental property.
A rental property is not
treated as a second home for tax purposes unless you utilize it
personally for more than 14 days or 10 percent of the days it is
rented. Assuming the property does not qualify as a second home,
the amount borrowed would have to be traced to its purpose.
Since borrowing to buy a
car would be considered a personal expenditure, the interest paid
on the mortgage would be similarly categorized and therefore not
deductible (unless of course the car is used in a business operation,
in which case the interest would be deductible regardless of whether
it is secured by a mortgage or not).
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