My adjust gross income is over $160,000 and I have a rental property. Form 8582 disallow pretty much all the loss (depreciation) for my rental property. How do I get around this? Set up a LLC?
2007-03-14 18:07:59 · 5 answers · asked by guts_az 1 in Business & Finance ➔ Taxes ➔ United States
There is no real way around the passive activity limitation. If you form an LLC it will still be taxed eventually be taxes on your personal tax return where the loss is limited, or you can make an election to be taxed as a corporation.
Unless you have more than 5 people owning 50% of the corporation you will be taxed as Personal Holding Company and not only will you pay normal tax on the profit you will also pay an additional Personal Holding Company tax of an additional 15%. If there are losses they will just get carried forward year after year.
The only other way around the passive activity loss is to make your rental an active activity. To do this you must become a licensed real estate broker.
2007-03-15 01:41:19 · answer #1 · answered by jks_mi 3 · 0⤊ 2⤋
Passive Loss Limitation
2016-11-07 09:13:56 · answer #2 · answered by ? 4 · 0⤊ 0⤋
Setting up the LLC will not help. To avoid the passive rules, you need to be active in the rental activity. This means taking an active roll in approving tenants, repairs & maintenance decisions, etc. If you have a mgmt company doing this for you, you will not avoid the rules. If you have the active participation, then you are limited to a loss of $25k (Code Sec 469(i), and is reduced in AGI exceeds $100k.
Consult a tax professional regarding this exception.
2007-03-15 01:54:36 · answer #3 · answered by extra_37 4 · 1⤊ 0⤋
You need to have income from any passive source in order to use these losses currently.
Any such loss not used in the year it is incurred is added to prior losses and carrfied forward indefinitely.
If you sell the property you get to write off these losses against your $160,000 of AGI while still paying long term capital gain tax on the gain on sale. You basically have a timing difference.
2007-03-14 23:19:31 · answer #4 · answered by waggy_33 6 · 1⤊ 0⤋
You need to have income from these passive rental activities in order for the losses to be absorbed. Otherwise they will carry forward until you sell the property.
2007-03-14 18:28:53 · answer #5 · answered by tma 6 · 0⤊ 0⤋