Can I Write Off the Losses on My Rental Property?

by Bob McCabe, CPA

My husband and I are planning to buy a condo in one of California's beach communities that we will rent out. We'll charge $900 a month, but our expenses will be $1,100 a month. Can we write off all of the $200 loss each month as well as any additional maintenance costs? And how do we depreciate the condo?

Depending on your income, you may not be able to deduct the $200 loss each month on your income taxes, but you can deduct certain items against the $900 monthly income. And you can depreciate the condo over 27.5 years.

The IRS usually considers renting property to be a passive activity. By passive, the IRS means that you are primarily using the rental as an investment. You can therefore use up to $25,000 of passive losses attributable to real estate investments to reduce nonpassive (or active) income, including wages. But the $25,000 maximum is reduced by 50 percent of the amount by which your adjusted gross income exceeds $100,000 (e.g., if your AGI is 110,000, you could only claim $20,000 dollars in passive losses). And if your AGI is $150,000, you couldn¹t claim any loss.

But there are legitimate deductions you can take against your monthly income from the rental. These include the mortgage interest, depreciation, repairs and maintenance, association dues, and advertising cost. You can depreciate real estate over 27.5 years, according to the IRS's modified accelerated cost recovery system (MACRS). The IRS publishes a table that helps you figure how much the deduction is for each year. Furthermore, you can also depreciate the cost of furniture, appliances and carpeting in the rental unit over five years.

You might want to consult with a certified public accountant, who can help you get all the legitimate deductions you are entitled to.

Bob McCabe is a faculty member at California State University, Fullerton's School of Business Administration and Economics.

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