- How to Figure Capital Gain on a Rental House
- Passive Loss Rules & Rental Property
- Can I Deduct Homeowner Insurance on a Rental House?
- Can I Claim a Rent Deduction for an Elderly Parent in a Home I Own?
- How to Break Out the Property Taxes Between a Rental Property & Primary Residence
- Can I Deduct Business Expenses & Still Have a Standard Deduction?
If you're a landlord, even part-time, most of what you spend on a rental home is a write-off. That includes any utility bills you pay for power, gas, water, WiFi and cable. Unlike expenses on your personal real estate, these are business deductions so you can take them even if you don't itemize.
If you're a full-time real estate professional, you write off business expenses, including utilities, on Schedule C, for self-employment income. Otherwise you take your write-off on Schedule E. You add up the income and expenses on each rental you own: if you have a loss on one, you deduct it from the income on the others. Improvements to the property have to be depreciated gradually. If you run cable or install a satellite dish, for example, that's an improvement. You depreciate those costs over years instead of taking an immediate deduction.
If you rent the house continuously, you can deduct expenses even when it's rented. With a vacation home you rent out part of the time, you have to divide expenses between personal and rental use. If, say, you rent it out 150 days and your son lives there free 150 days, 50 percent of the cable and other expenses are a business write-off. You don't consider days the house is empty in your calculations.
If the total on Schedule E is a net loss, you may not be able to deduct it from your non-rental income. IRS treats rental investment as a "passive" income source such as dividends or interest payments, and treats it differently than salary and other actively earned income. You can't deduct a passive loss from your regular income -- instead, you carry it forward and deduct it from next year's passive income. If you're still in the red, next year, repeat.
Unlike other passive-loss activities, being a landlord gives you an exception. If yo actively run the property, rather than hiring someone to manage it, you can deduct up to $25,000 from your non-rental income. Active management would include screening tenants, calling contractors for repairs, advertising rental openings and selecting the cable TV channel package. If your modified adjusted gross income tops $100,000, you lose some of the special write-off. Amounts higher than $25,000 you can carry over to next year, as usual.
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