Claiming Rental Property Tax Losses

by Philip Gills
(Boston, MA)

If you are claiming losses for your rental property tax, there is a subtle but critical tax law that you must know. When you rent out properties in the U.S., it is often considered a passive activity in the eyes of the IRS (and not a business activity).

What this means is that you are subjected to the passive loss rules which limits the amount of claimable rental property losses to $25,000 every year. If you earn more than $100,000 per year, the amount of tax losses you can claim drops below the full $25,000.

The good news is that if your total losses exceed $25,000, you can carry forward the tax losses for up to 20 years.

This deferred tax losses can be claimed if you have positive taxable income from rental properties in the following years. You can also recover these losses if you decide to sell off the rental property.

If you own multiple rental properties, calculating your passive activity losses can get tricky so it's a good idea to hire a tax adviser to handle it for you.