MLG generally has given reasonable advice. The important point in terms of being able to write off losses against regular income is your AGI. If your AGI is below 100K you’ll be able to use all of your write-offs against current income (up to 25 K in losses, if its more than that you are doing it wrong). The amount you can write-off is reduced by $1 for every $2 your AGI exceeds $100K (single or married, which is bogus). It disappears at AGI of $150k. If you are above (or near) 150K, you will have to carryover any losses.
There is more than one way to use the carryover losses in the future.
1- AS MLG stated … These can be taken when the prooperty is disposed of (sold).
2- These can also be taken against future profits (e.g. you can accumulate losses for a decode or two and capture tax free income in later years when the property ios paid off or rents have grown to the point where you make a paper profit).
Also, I believe that that you can move the losses and cost basis to a different property if you elect to do a 1031 exchange in the future.
The tax benefits are good over the long haul. While tax benefits are a factor in deciding strategically whether property makes sense for you to own long-term, IMHO, taxes are really not that huge of a factor in terms of making a buying decision on specific properties. I would aim for trying to make a small net profit on a cash basis with a low-maintenance property (in my experience this is much like the unicorn or mermaid, somewhat mythical, but it’s worth aiming for). If you aim for a small monthly profit, you’ll still end up with a tax loss due to depreciation anyway and also will probably underestimate long-term repair expenses.
[quote=MLG]
Another important thing to consider. You can only write off the full amount of your “loss” of your Adjusted Gross Income is less than $100,000. You lose a write off amount for every dollar over that you make. If your adjusted gross income is $150,000 or more, you cannot write off any losses on your rental income. The amount of your loss sits in a separate account, and you can only write it off against your capital gains upon sale of the house.
