*ln order to use a rental income/loss on your income taxes, several issues must be considered. First, to have property be considered rental use, it cannot be used personally for the greater of 1)14 Days or 2)10% of the number of days rented at fair rental value. In the above examples, the property could not be used for more than 14 days. If the owner used the property for greater than 14 days the property would become mixed use property and generally deductible expenses are limited to gross rental income. Thus there would be no loss allowable and no income claimed.

The second issue to be considered to take a rental loss on your taxes is your modified adjusted gross income. For tax purposes rental income/rental losses are considered to be passive and you are only allowed to take passives losses only to the extent that there is passive income. However, there is a special rental loss allowance rule for rental real estate: $25,000 of passive losses (married filing jointly) or $12,500 (single filers, -- married filing single are not allowed to take advantage of the $12,500 loss allowance unless they have lived apart for the entire year.) of passive losses can offset wages, capital gains, interest & dividends etc., if the taxpayer owns 10% of rental and has substantial involment in managing the rental (Hiring the management company qualifies.). A limited partner cannot take advantage of this loss. The amount of loss eligible for the $25,000 allowance is determined by combining income and losses of all the taxpayers rental real estate activities in which the taxpayer actively participates.
Whenever the government gives something, it takes something away. The $25,000 special rental real estate loss is phased out by 50% of the taxpayers modified adjusted gross income that exceeds $100,000 for married filing jointly or $50,000 for single taxpayers. Thus this special loss allowance is completely phased out at $150,000 for marrifed filing jointly or at $75,000 for single individuals.
Any losses that you are not allowed to take are carried forward to future years. Any suspended losses that still exist when the property is fully disposed of in an arms length transaction are allowed to be taken in the year of disposal.

The advantage of purchasing this property is the possibility of creating a current ordinary income tax loss while building equity (saving money), making a yearly cash income as the rental rate goes up and your mortgage payment doesn’t, a high probability of making a profit in future yearswhen the property is sold in the future as well as having a great vacation spot for 2 weeks during the year.

Since tax laws are complicated and everyone’s tax situation is different, the above information is being presentE as examples only and should not be relied on to make your personal purchase decision. It is recommended thE consult your own personal tax and financial advisor.