rental property losses
My husband and I bought a house together that we are living
in. Recently, I (not with my husband) bought a rental property. Our annual income
is over $150,000. Should I file the income tax separately using Schedule E for
the rental unit? And should my husband file income tax separately using Schedule
A for the residential home? Thank you.
Well, you have obviously done your homework and know that rental
real estate losses -- referred to as passive activity losses --
are not allowed for married (and single) taxpayers whose adjusted
gross income, or AGI, exceeds $150,000 per year. An exception exists
for real estate professionals, which apparently is not the case
Normally, passive losses are not allowed to offset
income from nonpassive activities, such as salaries and investment
income --although investment income seems passive, it is not considered
passive for the purpose of these rules. An exception exists that
allows taxpayers a special allowance of up to $25,000 in rental
real estate losses against all types of income if their adjusted
gross incomes do not exceed $100,000. For every $2 in AGI in excess
of $100,000, $1 of the special allowance is reduced, so that at
$150,000 in AGI there is no passive loss allowed.
if a married couple has an AGI of $120,000, they can claim up to $15,000 in passive
losses from rental real estate activities that they actively manage. If their
actual losses are less than $15,000, they can claim up to the actual loss. If
the losses exceed $15,000, the balance is carried forward to future years when
they can utilize it either because of the special allowance or if they have gains
from passive activities.
A married couple that files separately has no
special allowance unless they lived apart for the entire year. Hence, your idea
will not work unless you move into the rental property, in which case it won't
be a rental any longer.
To ask a question on Tax Talk, go to the "Ask
the Experts" page and select "taxes" as the topic.