Posted by NRP on August 04, 2003 at 20:29:52:
Is the $150k bar absolute? How does the $150k MAGI rule apply if you’re married? If the loss occurs from an LLC (of which you are a member), is there anyway to deduct your share from your other income when your MAGI exceeds $150k?
tax questions about rental properties - Posted by Rick
Posted by Rick on July 31, 2003 at 19:55:20:
Hello,
I am wanting to get started in investing in real estate, but I had a few questions on the tax end that I was not sure of.
1.) If you purchase a rental property, can you write off the interest on the mortgage along with the depreciation? Meaning one or the other,or both.
2.) For the rule on claiming depreciation,(up to 25k), is that per entity?(Meaning 25k for me, 25k for my 1st LLC, etc)
3.) Can the income/losses from an LLC/LP that I would operate get attached to my personal earned income? (If I were to put my rental into a LLC/LP can the depreciation/mortgage interest go against my personal income?)
4.) What is the exact formula for calculating the amount of depreciation on a property per year? I was told by someone once that it was the purchace price/28.5 yrs. Is this correct?
Re: tax questions about rental properties - Posted by Tom Bazley, CPA
Posted by Tom Bazley, CPA on August 01, 2003 at 08:38:34:
Yes, both mortgage interest & depreciation are deductible.
I’m not sure what you’re talking about w/ the $25K depreciation rule. If you’re referring to the Section 179 expensing, real property is not eligible for Section 179 treatment.
Income/loss from single member LLC will be reported on your 1040, so it will either add to or reduce your other income. If you are a limited partner in an LP, rental losses cannot be used to offset your other income. Don’t use an LP for rentals that are showing losses.
Rental real estate is depreciated over 27.5 years, using straight line depreciation & mid month convention. Little more complicated than just dividing purchase price by 27.5 years.
Re: tax questions about rental properties - Posted by Rick
Posted by Rick on August 01, 2003 at 11:11:21:
I had read a book a while back and it had stated that you could only write off up to 25K in depreciation per year. Is that correct? Or maybe the better question is if you own say 50 residential homes that all depreciate at 3k per year, can your total depreciation be 150k for one year?
Re: tax questions about rental properties - Posted by Tom Bazley, CPA
Posted by Tom Bazley, CPA on August 01, 2003 at 12:44:11:
You must have misunderstood, or the book you read was mistaken. You may only use up to $25,000 of rental real estate losses against your other sources of income. That amount is phased out at 50% of the amount that your modified adjusted gross income exceeds $100,000 (for MFJ). So, at MAGI of $150,000, you lose the right to use rental losses to offset other income. In order to take the losses, the active participation rules must be met.