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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 15160
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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MyI income level is at $130,000 per year and I own a rental

Customer Question

MyI income level is at $130,000 per year and I own a rental house. My accountant told me last year that because I made over $100,000 I could not write off my expenses on the house which were substantial because I had to put in new refrigerated air/heating units. Can you tell me what the laws says?
Submitted: 1 year ago.
Category: Tax
Expert:  Megan C replied 1 year ago.

Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

Thank you for your question, and thanks for using JustAnswer.com. Rental activities are passive activities, and you can write off up to $25,000 a year against active income. However, this amount is phased out when your AGI is over a certain amount - which is $100,000. Your income level is $130,000 and for every $2 your income is above $100,000 your allowance will be reduced by $1. So, your income exceeds the allowance by $30,000 so your allowance is reduced by $15,000. This means you can write off up to $10,000 in losses. You can CLICK HERE to read about this.

The disallowed losses are not lost forever. When you dispose of the rental activity, then you will be able to take that loss in the year of the disposition. This will help you with the income tax hit you may get if you sell your property for a gain. CLICK HERE to read more about this.

If you are a real estate professional, you can take the loss regardless of the amount. To be a real estate professional you need to spend more than 750 hours in qualified real estate activities and materially participate in the rental activity. If you also have a regular job, to qualify for a real estate professional you would also need to work more hours in real estate then you do other activities. If you have a 40 hour a week job that is unrelated to qualified activities, then it would be virtually impossible to qualify as a real estate professional. If you are married, only one spouse has to qualify to take the loss.

 

I also noted that you said you put in new HVAC system - the entire cost is not deductible in the current year. You will add this to the basis of your house and depreciate it over the remaining useful life of the house. I'm sure your accountant can help you ensure that you handle that aspect correctly.

Please let me know if you need additional assistance. Thanks again for using JustAnswer.com and have happy New Year.

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You should be aware that your question, as with most tax questions, can never really be answered completely...addressing all the permutations; that is because of the many assumptions that have to be made I have done my best to determine what I think you are asking and answering it in the most direct and understandable manner possible. If, however, after reviewing the questions, you have any uncertainties or further questions, please do not hesitate to ask.

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