Rental Property Tax Question?

Question

I'm using TurboTax to file my taxes. After, I entered my Income, I had to pay 2000 tax to IRS. I thought my tax will be reduced after I enter loss from my rental property (Rental Income - Mortgage Interest + Depreciation + Repairs, etc). But, to my surprise it increased my tax due to 2600 although I had 5300 in rental property loss. Why?

Does the tax deduction depend on AGI? I'm married filing jointly with AGI of approx $130K.

Answer 1

What you're dealing with here is considered a "passive activity loss". I'm presuming that you're not a real estate professional, so the PAL rules apply to you. There is a maximum of $25,000 you can deduct in passive activity losses. If your AGI is $150,000+, you have to carryforward your PAL to a year when you can use it. There is a phaseout range between $100,000 - $150,000 that applies to you. You're in a phaseout range, meaning that for every $2.00 over $100,000 in AGI, you lose $1.00 of the total PAL amount of $25,000. So, if your AGI is $130,000, you're allowed $10,000 of PAL ($25,000 less $15,000). Therefore, you should have been able to deduct the $5,300, unless there's some other PAL you have on your return that I'm not aware of. I'm kind of surprised that TurboTax didn't pick that up-it's not exactly an obscure section of the code. Double check how you answered the questions in TurboTax and see if it changes your answer.

Back to tax returns for me-no more goofing off at tax time!:)

Answer 2

Something is wrong with your return, whether you entered something wrong, or the program is wrong. When you have a loss of any kind, it reduces your adjusted gross income, therefore your taxable income, and your tax goes down. It can't be any other way, and it has nothing to do with a passive loss. All that can happen regarding that is some of the loss is disallowed and carried forward until you sell the proberty. There is no way that a rental loss causes your tax to increase.
If you have not filed it yet, don't. It is wrong.

Answer 3

You just found out about a flaw in Turbo Tax. It is for residential individuals only.
Take your return to real accountant after April 17 and have them go over it. There is a good chance you will be able to amend the original return.
I have been disgusted with Turbo Tax after the first time i used it for this same reason. They do have a small business version available (for more money of course) but I wouldn't touch it.

Answer 4

No, rental loss doesn't depend on AGI. You rent to make money, therefore all your rental expenses are due to income-producing activity. So the loss is for AGI.

Answer 5

Nope, Depreciation provides extra funds bypass and decreases your earnings taxes by utilising providing you with an fee to cut back your earnings. however the valuables tax is due the state and the assessor would not care approximately your depreciation. they in simple terms have their very own way of determining your ingredients fee in step with contemporary fee and you will owe them in step with that - what they think of you need to sell it for. If the markets are down they might regulate your ingredients tax with a "re assessment" briefly. in case you think of they have the fee too extreme you may petition to have the valuation replaced.

Answer 6

It shouldn't have increased your tax due at all. Probably there's an error in the program or something was entered incorrectly.

Answer 7

You will not get to deduct the rental loss if you don't have any other passive income. It will carry forward to future years when you either have rental (or other passive) income, or you sell the property.

http://www.irs.gov/publications/p527/ar02.html#d0e4470

Answer 8

That isn't possible. There must be an error in how you input the information.