Tax Experts

Deducting a Passive Loss on Rental Property

Q: I made $157,000 last year and paid $40,000 in interest on a rental property. How much can I write off?

My CPA told me it's not going to benefit me because I made over a certain amount. Is that true? Can I write off more on the rental property? -- Eric A.

Kevin's Answer:

Sounds like we've got what is called a "failure to communicate" in Cool Hand Luke.

There are all sorts of things you can write off if you own a rental property, including interest paid on the mortgage, property taxes, advertising and maintenance expenses, utilities if you pay them, etc.

You deduct such expenses against your rental income.

Now, what I think your CPA must be talking about is any resulting net loss -- that is, if your expenses exceed your rental income. In that case, your losses are considered "passive losses," and Congress says you can't deduct such losses if your income exceeds $150,000.

But that does NOT mean the expenses or the losses are useless. You can bank those unused passive losses and deduct them against the profit, or other income, in the year you sell the rental property.

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