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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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My wife and I are interested in purchasing a work / loft property.

Resolved Question:

My wife and I are interested in purchasing a work / loft property. We own a house and would either use the loft as a studio or rent it out. Are there are any tax advantages with a combined income of 150K. ?
Paul Johnsn
Submitted: 3 years ago.
Category: Tax
Expert:  Lev replied 3 years ago.

LEV :

Hi and welcome to Just Answer!
If that will be your secondary home -you may deduct real estate taxes and mortgage interest the same way as you deduct real estate taxes and mortgage interest for the primary home.
If you will convert the property into rental - you will report all your rental income and expenses on the schedule E.If you will have a rental loss - because of your income level - you will not be allowed to deduct rental losses - instead losses will be carried over to following years unless will be used to offset other passive gains or unless you will sell the property.
Let me know if you need any help or clarification.

Customer:

yes, we need clarification. Lets say we rent unit for 1,500 and costs per month are 1,600. We understand we can't take loss at end of year, but are we allowed to off set the difference?

Customer:

Are we allowed to write-off expenses...such as the mortgage since the rent is considered income or can we only write-off only the interest and taxes?

LEV :

If your monthly rental income is $1,500 and rental expenses are $1,600 - your annual loss is $1200.
If you or your spouse actively participated in a passive rental real estate activity, you can deduct up to $25,000 of loss from the activity from your nonpassive income. This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. Similarly, you can offset credits from the activity against the tax on up to $25,000 of nonpassive income after taking into account any losses allowed under this exception.
If your modified adjusted gross income (MAGI) is $100,000 or less ($50,000 or less if married filing separately), you can deduct your loss up to the amount specified above. If your MAGI is more than $100,000 (more than $50,000 if married filing separately), your special allowance is limited to 50% of the difference between $150,000 ($75,000 if married filing separately) and your MAGI. Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance.
All disallowed deductions are fully deductible when you sell the property.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22655
Experience: Taxes, Immigration, Labor Relations
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