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DealLevel

Taxes and rules

The IRS and local rules that change the numbers.

6 articles

  • This rental banks $3,864 a year and reports a $2,274 loss

    Often yes, up to a point. A rental loss is passive, so you can take up to $25,000 of it against ordinary income if you actively participate, and that allowance shrinks to nothing between $100,000 and $150,000 of income. In the example below, a house that banks $3,864 reports a $2,274 loss.

    6 min read

  • A 1031 exchange moved $140,836 into a fourplex and left $26,066 exposed

    A 1031 exchange lets you move the proceeds of one investment property into another and defer the tax on the gain, if you identify the replacement in 45 days and close in 180. In the example a $140,836 sale buys a fourplex that needs $114,770, so $26,066 stays taxable.

    5 min read

  • Sell this rental in year 10 and $26,971 of the $140,836 goes to tax

    Two taxes, in this order: the depreciation you claimed comes back at a rate of up to 25%, and the rest of the gain is taxed at long-term capital gain rates. In this example a house sold in year 10 hands over $140,836 in cash and $26,971 in tax.

    6 min read

  • This Airbnb’s 237 booked nights need 34 separate stays to pass the 7-day test

    It is an exception in the passive activity rules, not a write-off. If the average guest stay is 7 days or less, the property is not a rental activity, and material participation decides the rest. In this example, 237 booked nights have to arrive as at least 34 separate stays.

    6 min read

  • This rental banks $5,043 a year and shows a $417 loss on paper

    Depreciation lets you deduct part of a rental building’s cost every year for 27.5 years, and nothing leaves your account when you take it. In this example it turns $5,043 of real cash flow into a $417 loss on the tax return.

    5 min read

  • Rent out your house or sell it? Check the three-year tax clock first

    Compare the monthly cash flow from renting with the cash in hand from selling. Then check the tax clock: if you lived there two of the last five years, up to $250,000 of profit ($500,000 for most married couples) can be tax-free, and renting it out for more than three years can end that.

    3 min read