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by Chris Bird
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le to deduct 100% of their rental property tax losses from their income. That's not true for people who spend less than full time as real estate professionals or rental property owners. Details are spelled out in the Internal Revenue Code 469(c)(7). The key factors for this deduction to apply according to IRS MSSP Guidelines (Feb. 1996) are this:
Beginning with the 1994 year, a taxpayer who meets ALL of the following can deduct current rental real estate losses in full regardless of how high his/her Adjusted Gross Income might be:
A. More than half of the taxpayer's personal services in all businesses must be in real property businesses. A real property business is real property development, construction, acquisition, conversion, rental, management, leasing, or brokerage .
B. The taxpayer must spend more than 750 hours a year in real property trades or businesses.
NOTE: For time to be counted in either of the above two tests, the taxpayer must materially participate in the activity.
C. The taxpayer must materially participate in each rental real estate activity unless he or she has filed an election to group all rental real estate activities as one (for purposes of materially participating). See your accountant for more detailed information on this issue.
2. Re-think Your Interest Costs
Do not justify running up your debts to generate tax deductions. For an individual in the highest bracket, for every dollar of interest paid, the tax savings is only 35 cents. This means you paid 65 cents for nothing. (For an individual in the 28% bracket you paid 72 cents for nothing.) Don't spend the money if the main reason you're buying it is to "buy" a tax write-off.
When in doubt, remember the saying: Borrow t |
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