January 31, 2023

Carla Dennis, EA, MST and CEO of the award-winning tax accounting firm, Carla Dennis & Associates Inc.– Expertise in Tax Planning.

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If you are a real estate investor, it is important that you know the losses you can potentially deduct and how you can deduct. Many of my real estate investor clients ask me, “Karla, I’m not paying my rent. What am I?” This piece should answer that question for readers who are wondering the same.

lose rent

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If rent is not being paid on time or in full, it is loss of income. You may be in a situation where you have gone six or seven months without receiving rent from the tenant. As a result, you don’t even have that income to report on your taxes. You still have expenses, mortgage interest, property taxes and insurance, though, right? If you’re in this boat or going through a similar situation as an investor, you can incur these and other expenses as a tax write-off.

track expenses

To even consider this option, you must keep track of all expenses. Unfortunately, the loss of rent is not a tax deductible. I know how it must feel and you might be wondering “how could this happen?” The rationale behind this is that if you do not report income because rent is not paid, He How does it get damaged.

Let me give an example of this. Let’s say you have a place that you rent for $1,000 per month, which would equal $12,000 per year. Now, let’s say you move in the red for only four months of this year; This means you only have to report $4,000 of rental income and the remaining $8,000 of rental income won’t be reported – which means you’re probably going to trigger a rental loss. However, your rental losses are being limited based on the income you make; then you make more $100,000 when filing jointly with one spouse, you will not receive any of those rental losses. If you are in this situation, you can work within the tax code to suspend rental losses so that you can pick them up later when your rental income returns to regular levels.

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review income

Before I do, another option to address the loss is to bring your income below the $100,000 limit for joint filers so that they can carry up to $25,000 in damages. If you’re saying to yourself, “Carla I can’t do this. My income is so high that I can’t make it that low.” That’s when you have to think about becoming a real estate professional. You may already have a W-2 job and be an investor, so what would a real estate professional look like?

A real estate professional is a person who physically participates in their real estate, meaning they manage the real estate, choose their own tenants and do most of the work that they own in the real estate. Huh. What does that mean for you? This means you qualify as a real estate professional by logging all your time spent on real estate, managing your expenses yourself, and also tracking who works for you. could. Once you are a real estate professional in the eyes of the IRS, your losses will not be limited and you can take 100% of your losses and recover some of your lost revenue.

With all this in mind, here are the key things to remember when facing a rent loss. Try not to be bothered by the loss of rent. I know it sounds great, but there is a way to handle it. Track all your expenses to be able to maximize those deductions. And finally, you might consider qualifying yourself as a real estate professional—if you choose not to claim damages down the road. As a real estate investor, there are options to explore that can help you protect your losses and reduce them in return.

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The information provided here is not investment, tax or financial advice. You should consult a licensed professional for advice related to your specific situation.

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