I’m looking to start investing in rental property. I currently make over $100K a year and have read that it can impact my ability to write off depreciation. Can anyone enlighten me on how this works, and whether there is a way around it?
depreciation is but one part of calculating a rental income or loss, along with all the other ordinary expenses of rental properties: insurance, taxes, repairs, etc.
however, over $100k of AGI, rental losses are limited (and eliminated over $150k). This means that if your property has a loss, (rent income minus all expenses including depreciation) the loss you get to claim on your 1040 will be reduced if your income is over $100k.
Even if your income is below $100k, losses are limited to $25k per year (unless you’re a real estate professional).
The loss isn’t lost, however, it just carries forward until your income falls below 100k, or you sell the property. At that time any suspended losses are taken in full. Keep good records so you don’t “lose your loss.”
Having just completed my taxes less than a month ago and run head long into this limitation I can confirm that AGI is the appropriate measure not gross. Check out the IRS rules at irs.gov if you are uncertain.