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Sign into your accountRental Property Tax Deduction: IRS Schedule E and More
February 27 2017
Many real estate agents and brokers own rental properties or think about acquiring them. Sometimes, it works out amazingly but other times, it leads to losses. These losses can lead to a rental property tax deduction on IRS Schedule E form—but you need to understand the IRS restrictions on rental losses.
What Is the Rental Property Tax Deduction?
Investing in real estate can lead to great returns, but it doesn't always lead to a profit. When that happens, you can take a rental property tax deduction. Like many investments, real estate may not always pay off during the first few years. The government wants to encourage investment, so it allows for write-offs with some strict limitations.
If you have rental property losses, you have plenty of company. IRS stats show that more than half of the 8.7 million taxpayers with rental income showed a loss. Some of this is due to the depreciation deduction allowed on the cost of the property.
What Is a Rental Loss Limitation?
You have a rental loss limitation if all the deductions from a rental property you own exceed the annual rent and other money you receive from the property. If you own multiple properties, combine the netted annual income or losses from each property to determine if you have income or loss from all your rental activities for the year.
You report your rental income and deductible expenses on IRS Schedule E. You can find a sample of this form on the IRS website.