How to Take Lost Rent on Taxes
- 1). Confirm that your adjusted gross income, or AGI, for the filing period is less than $150,000. If your AGI is above $150,000, you may not use any real estate losses (or other passive losses) to offset other income. The general rules of the tax code are that you may not use passive losses to offset other income. However, if your AGI is less than $100,000, there is an exception where up to $25,000 of such passive losses can be deducted. A smaller deduction on a sliding scale can be taken if your AGI is between $100,000 and $150,000.
- 2). Document your expenses associated with the rental property carefully. Let's say, for example, that you had expenses of $21,000 that year on the property, but it was only rented for six months at $2,000 a month. That means your net loss that year was $9,000 ($21,000 - $12,000 = $9,000).
- 3). Fill out Schedule E, Supplemental Income and Loss, in detail, specifying your expenses and income for the property. As per the example, you would be claiming a $9,000 passive loss to reduce your taxable income. Schedule E is filed along with Form 1040, and should be filed by April 15 every year.
