Business Loss or Landlord Deduction?

Question

I have property that I am currently renting. This property is mortgaged and I am able to deduct my interest from my taxes. However, the rental income I receive does not cover the mortgage or my expenses (that is, because of the market, I charge less in rent that I pay in mortgage and maintenance each month). Is it possible to declare this loss on my taxes? I know I have to report the rental income, but it seems I should also be able to report this loss. Is it a business loss or is this considered part of my "expenses" on advertising/caring for the property? Are there specific forms to use (like form c for business loss)?

This property is in another state - so it is not a shared duplex. If I use TurboTax, will this automatically fill out items on Form E, including this loss (I know TurboTax uses this form to allow me to deduct expenses).

Answer 1

Yes, you would report rental income and expenses on Schedule E of Form 1040. You would report any expenses involved in the rental property, i.e. interest, taxes, insurance, utilities, maintenance, repairs, advertising, etc. Dont forget that you are also able to deduct depreciation on the property and any improvements. The basis used is usually your cost. If you converted your home to rental property, you would use the lesser of the fair market value or adjusted basis. The recoverable period for residential rental property is 27.5 yrs.

If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property.

Yes, Turbo Tax will automatically generate a Schedule E. It will ask you questions regarding your rental property and automatically fill out the required forms, including Form 4562 for depreciation.

Answer 2

You would report your rental income on Schedule E and then list all your expenses. These include real estate tax, mortgage interest, repairs, maintenance, depreciation, etc. related to the rental.

You should be able to take the loss depending on your filing status and other income.

Make sure you put the real estate tax and mortgage interest on Schedule E not Schedule A unless you use a portion of the rental as your main home (for example a duplex where you live in one half and rent out the other) these items are split with the rental portion on the Schedule E and the Personal portion on the Schedule A.

Answer 3

Yes, if you use TurboTax, the interview screens will assist you in entering your income, expenses, and setting up the information for the depreciation deduction for your rental.

When you get to the "Did You Participate" screen, if you're not sure that you "actively" participated, click on the Guide Me button. If you have "actively participated" and your income (modified adjusted gross income) is less than $100,000, you may get to deduct your rental loss (up to $25,000) on your 2006 tax return.

For more information on the tax rules for your rental, check out the IRS Tax Topic 414 and Pub 527

Answer 4

Unless you are a Real Estate Professional, rental property is considered a 'passive activity'. Passive activity losses are limited to the amount of passive activity income. This means you can't use the loss to offset other income.

Answer 5

http://www.irs.gov/taxtopics/tc414.html

Hope this helps. It should answer your questions. There are many deductions on rental property.
Check what the IRS has to say...

good luck & bless

Answer 6

No you cannot declare losses until you sell the property for a loss and then you get a deduction for it. Sorry.