Prior to year-end, make sure that you are structuring your rental activities in an appropriate manner in order to maximize the use of your $25,000 write-off. If you lose money on your real estate investments, you may be able to use up to $25,000 of those “passive activity losses” to offset other income. When possible, structure the timing of your income to keep your modified Adjusted Gross income less than $100,000 because for every $2 of modified AGI over $100,000 per year, the IRS takes away $1 of your loss write-off.

Specific Details

The taxpayer reduced their taxable income by $5,000 by structuring their rental income and expenses in order to maximize the use of their $25,000 write-off limit. Since the taxpayers income was taxed at the 30% tax bracket, the income reduction may decrease their income taxes by $1,500 ($5,000 x 30%).

Potential Savings

You should structure your rental income and expenses in order to maximize the use of your $25,000 write-off limit.