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Tax Planning/Rental Properties


We have three rental houses that were a wonderful tax deduction for us.  Over the past two years my wife and I have increased our income to over 150K combined.  The result of our hard work has led to the inability to deduct losses from our rental properties.  The person who does my taxes tell me the only way I can reduce my taxable income is to start a business so that I can deduct all my expenses.  Why can't my business be my rental properties?  They take up many hours of my time and energy!  Can I set my rentals up as an LLC and then have the ability to take the losses again?

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Kirk - Whoever told you that the only way to reduce your income is to "start a business so that you can deduct all your expenses" is an oversimplification at best and an incorrect statement at worst.

Without going into the complexity of the US tax code, rental real estate activities are considered passive activities.  You can only offset passive gains with passive losses.  There is no way to get your income under $150,000 by simply starting a business and deducting all your expenses.  You have to have a legitimate business with legitimate income and expenses.  The activity of rental real estate is not a "business" in the strict sense of the tax code.

The good news is that you will not lose those deductions entirely.  They will carry forward and be suspended until such time as your income drops below $150,000 or your entirely dispose of the property.

I know that's not the answer you've been looking for, but I hope the explanation helps somewhat.

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As an Enrolled Agent, I am fully capable of providing tax advice as it relates to personal and business income taxes. Enrolled Agents are the only Federally licensed tax practitioners and are admitted to practice before all administrative functions of the IRS. My specialty is working with small business owners who file Schedule "C" and helping them to structure their business in such a way as to maximize as many tax advantages as possible. I also enjoy working with individuals who have both routine as well as complex tax situations. I prefer to concentrate on individuals and small business tax planning.


I have a 25 year background in financial services including tax, bookkeeping, insurance, real estate and securities. I was previously the Chief Financial Officer of a local and national franchise organization. I am currently semi-retired, but used to own (in partnership with another EA) an individual and small business financial engineering firm where I work with nearly 2,500 individuals and small business owners in nearly every state and almost every continent, assisting them in all aspects of their tax and financial well-being. I have prepared or reviewed more than 8,000 tax returns in my career.

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Enrolled Agent, Admitted to Practice Before the IRS, Accredited Tax Preparer, Fellow of National Tax Practice Institute, Certified QuickBooks ProAdvisor (1999-2011), Sleeter Group Certified QuickBooks Consultant, Life & Disability Insurance Agent License (California, Texas, Maine), Real Estate Agent License (California); Many years of continuing education in all these fields.

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