Claiming Rental Losses

The IRS has always scrutinized large rental real estate losses, so be careful!

The passive loss rules prevent the deduction of rental real estate losses, with two main exceptions. Real estate professionals that spend more than 50% of their working hours and 750 hours each year materially participating in real estate as brokers, developers, or landlords can write off rental losses.

Also, if you actively participate in the renting of your property you can also deduct $15,000 of loss against your other income, but did you know that the $25,000 allowance phases out at higher income levels?

Running a Business

Are you self-employed? Then you’re probably well acquainted with Schedule C, at which the IRS is known to look at with scrutiny. Why? Because a lot of self-employed people not only fail to report their full income, but they also claim excessive deductions.

Here’s who will have a higher audit risk. Business owners who report a substantial loss and have income from other sources such as wages, cash-intensive businesses such as restaurants, hair salons, etc, and sole proprietors reporting at least $100,000 of gross receipts on Schedule C.