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Stephanie B.
Stephanie B., Enrolled Agent
Category: Tax
Satisfied Customers: 556
Experience:  MTax, EA, QuickBooks Proadvisor. Over 15 years accounting and tax experience specializing in individual and small business.
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Rental Property Losses - no deduction due to income

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We have a property that was rented out for the entire year. We show a passive loss on the property itself, and should be able to take advantage of the depreciation of the property to allow for a tax deduction on personal returns. Unfortunately (fortunately) our earned income is too high to all to count any loss - depreciation or otherwise as a deduction. If we run the losses through an LLC would we be able to generate a tax deduction that way or are we still out of luck?

Stephanie B. :

Thank you for your question.

An LLC, unless elected to be taxed as a C-Corp, will still flow through to the individual taxpayer with the same income limitations.

Do keep in mind that the disallowed losses are not forever lost. You will be able to start using them when your rentals make a profit to offset the profit, when your income drops below the limitations, or when you completely dispose of the property.

Please let me know if you need additional clarification.

I look forward to your response.



Owning a small business myself, we are able to carry our K-1 losses onto my personal return for a deduction. Is that not possible with a rental property?

Stephanie B. :

Rental properties are considered passive activities while small business is non passive. The rules for passive and non passive losses differ.

There is a special allowance for rental activities allowing for up to a $25,000 loss but there are income limitations.

The allowance is reduced or phased out completely when the modified AGI is between $100,000 and $150,000, $50,000-$75,000 for a MFS couple.


The AGI limitation is what we are running into... is there any way to get those deductions this year? (I know thats a tough question not knowing our situation)

Stephanie B. :

Not unless you bring your AGI down, which is difficult to do after the fact.


Ok, thanks for the help

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