How To Deduct Rental Property Losses

Watch this video to find out how to deduct rental property losses on your individual tax return.

In the video, I explain how to file rental income or loss on the Schedule E form of your individual tax return. The best way for you to file if you’re going to file using the IRS forms is to go to their website to free fillable forms. It’s a simple process and they do a lot of the calculations for you.

The Schedule E form, which is used to report supplemental income and loss, can be used to itemize expenses associated with a rental property that you own, and calculate how much of a deduction you can take on your taxable income from any rental losses you have incurred.

People tend to think that having rental revenue coming in is a surefire way to have a surplus of income, but it’s actually quite common to have a tax loss on rental activity due to the interest, depreciation and other expenses.

The expenses associated with rental real estate that can be claimed on the Schedule E form include interest, depreciation, management fees, repairs, utilities, insurance, cleaning and maintenance, taxes, travel (including mileage and depreciation of your vehicle), commissions and legal fees.

Generally speaking, you are not allowed to deduct a tax loss associated with your rental real estate because rental activity is considered a passive activity, unless you are a rental real estate professional—in that case it’s not considered a passive activity because it’s your job.

However, if you are not a rental real estate professional but do actively participate in the rental activity—for example, you collect the rent yourself, or call the repairman yourself rather than having a management company taking care of these tasks for you—then you are actively participating and can deduct up to $25,000.00 of your loss, depending on how much gross income you have for the year in question.

I go into this, and much more, in greater detail in the video, so please have a look at it to find out whether or not you will be able to deduct rental property losses on your individual tax return.