Are You Provoking A Tax Audit?

Rental Losses

The IRS scrutinizes returns with this deduction because the requirements are difficult to meet and tax auditors know they have a high chance of success in disallowing this deduction. Regulations require taxpayers taking this deduction to be either real estate professionals or active participants in the property rental. Individuals who own properties and have a real estate agent or management company handle the business of renting may be excluded.

If you own a rental property and take this deduction, prepare to justify "active participation." Taxpayers should also be mindful of income limits. This deduction starts to phase out when incomes reach 100,000 dollars and becomes unavailable when they surpass 150,000 dollars. Real estate professionals, such as brokers, agents, and landlords, can deduct rental losses without limitation provided they spend at least fifty percent of their time and 750 hours per year managing rentals.

Continue reading to learn how being self-employed can trigger an audit and how to handle it.