and deduction limitations
Our AGI (adjusted gross income) is over $200,000 so our CPA says
the AMT hit us hard this year and we cannot take the deduction for
property taxes on our main residence. This is the only property
we own, and we do itemize. Does this sound correct?
We also wanted to buy some rental property. But the CPA says we
will not get any rental write-offs during the time we hold it until
we sell the property. Then we can deduct any expenses (upkeep, interest,
taxes, management fees, etc.) against any gains in the sell price.
Does this sound right?
The alternative minimum tax is a secondary system of taxation that
takes away some of the tax benefits that the regular income tax
provides. Items that are not deductible for alternative minimum
tax are your state and local income taxes and your real property
taxes (in fact, all Schedule A tax deductions are not allowed for
the AMT). So although you may deduct your residence's taxes, it
does not provide you any tax benefit since you are in AMT.
Rental real estate is considered a passive activity. A loss from
a passive activity, generally, cannot be used to reduce other types
of income. Hence any unused current losses (rental expenses in excess
of rental income) are carried forward until the year that you can
use them against passive income, such as gain on the sale of rental
An exception to this general rule is if your AGI is in the range
of $100,000 to $150,000. If your AGI is $100,000 or less, you can
write off up to $25,000 in rental real estate losses (current and
prior year) against salary and other types of income. For every
$2 your AGI exceeds $100,000, the $25,000 allowance is reduced by
$1. Hence, if your income is expected to continue at around $200,000,
you will not get any current tax benefit from the rental property
losses until you sell. If you're a real estate professional (generally,
a Realtor or developer), the limitations on rental losses do not
apply to you.
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