Today TaxMama hears from Betty in Arizona, with this question. “ I realized that I didn’t deduct depreciation at all in my past 8 years tax returns. So I will use Form 3115 to capture all the depreciation. But this will create a big loss on Schedule E. Is this loss limited by Form 8582 for the total loss on rental of $25,000?”
How astute of you to realize that you can use Form 3115 to catch up on all the unused depreciation.
Sadly yes, your Schedule E rental property deductions will be limited to $25,000 per year.
But don’t despair! All is not lost. The suspended losses will still be there for you to use when the property starts showing profits. And if there are still suspended losses sitting there, when you sell the property you will be able to offset the gain with these losses – even if you sell the property at a loss. In fact, you can use up these losses each year, to bring you to the $25,000 loss level.
You can read more about Passive Loss rules in IRS Publication 925.
And remember, you can find answers to all kinds of questions about special tax loopholes and other tax issues, free. Where? Where else? At TaxMama.com.[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
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- IRS Publication 925 :: Passive Loss rules