Can I deduct from income that I receive as an employee the losses from a rental property or from businesses that I own?

[LdiJ]

A few times in this thread, I have raised a question as to whether wages that exceed $150,000 can be offset by losses in an LLC in which I am a member, but I do not believe I have received a clear reply. Isn't there a limit that only allows for deductions to offset wages if the wages do not exceed $150,000?

Does it make a difference that the LLC in which I am a shareholder owns a gas station that is rented out to an operator tenant? I am not sure how this plays into LdiJ's comment, "Only if that income was active business or trade income." I actively maintain the property that the LLC owns, and this property is then leased to an operator. Is this "active business or trade"?

Yes, it makes a difference. At this point I am throwing up my hands and telling you that you need a tax professional.

 

[Taxing Matters]

A few times in this thread, I have raised a question as to whether wages that exceed $150,000 can be offset by losses in an LLC in which I am a member, but I do not believe I have received a clear reply. Isn't there a limit that only allows for deductions to offset wages if the wages do not exceed $150,000?

There is no limitation on the amount of other ordinary income that a net operating loss (NOL) may offset. But if it is a passive activity loss or a loss from a business in which you did not actively participate (and thus not a NOL) then there are significant limitations on the use of the loss to offset other income. See IRS publication 925.

Does it make a difference that the LLC in which I am a shareholder owns a gas station that is rented out to an operator tenant? I am not sure how this plays into LdiJ's comment, "Only if that income was active business or trade income." I actively maintain the property that the LLC owns, and this property is then leased to an operator. Is this "active business or trade"?

It does make a difference, and this is why you need to see a tax professional to lay out ALL the facts of what is going on instead doing as you are doing here, which is providing facts piecemeal. You have some complex situations and are not deeply knowledgeable on the tax rules that apply. Spending a little money on a tax pro to get it right can save you a lot more than that fee over what it might cost you if you screw it up.

Since the LLC does not operate the gas station and simply rents the site to the gas station operator, the LLC is a rental activity. Rental activities are passive activities and thus subject to the passive activity loss limitations unless you are in the unlikely position of qualifying as a real estate professional. Publication 925 explains this.

 

[davew9128]

There is no limitation on the amount of other ordinary income that a net operating loss (NOL) may offset.

Actually that's not true anymore

 

[LdiJ]

Actually that's not true anymore

Can you please expand upon that? I really want to know.

 

[Taxing Matters]

Actually that's not true anymore

You're correct, of course. I had forgotten the changes to the NOL rules for individuals in the 2017 tax act changes. Thanks for the reminder.

Can you please expand upon that? I really want to know.

The explanation is best obtained from the IRS itself. Publication 536 explains the excess business loss limitation for individuals starting at page 10.

 

[LdiJ]

You're correct, of course. I had forgotten the changes to the NOL rules for individuals in the 2017 tax act changes. Thanks for the reminder.



The explanation is best obtained from the IRS itself. Publication 536 explains the excess business loss limitation for individuals starting at page 10.

Thanks. After reviewing the Pub I realized that I do remember noting those changes but have not had to use them for anyone so it slipped from my mind.

 

[davew9128]

Thanks. After reviewing the Pub I realized that I do remember noting those changes but have not had to use them for anyone so it slipped from my mind.

It came up on a few fiscal corporate year end returns I had, and of course the problem is that they were liquidating, so we have corps closing up and no way to carry the loss back to an income year and no future year to carry forward to.

 

[LdiJ]

A few times in this thread, I have raised a question as to whether wages that exceed $150,000 can be offset by losses in an LLC in which I am a member, but I do not believe I have received a clear reply. Isn't there a limit that only allows for deductions to offset wages if the wages do not exceed $150,000?

Does it make a difference that the LLC in which I am a shareholder owns a gas station that is rented out to an operator tenant? I am not sure how this plays into LdiJ's comment, "Only if that income was active business or trade income." I actively maintain the property that the LLC owns, and this property is then leased to an operator. Is this "active business or trade"?

It really depends on just how active you are in the maintaining of the property. If you are active for at least 250 hours a year that makes is an active activity rather than a passive one. However, it could be passive for some of the other members of your LLC.

I do not understand where the 150k limit that you believe exists comes from. If you perhaps explain where you got that information it might be easier to help you. I can tell you that there is no 150k limit that applies to all things.

 

[jmt111]

The $150,000 figure came from the rule whereby taxpayers who are not real estate professionals can write off up to $25,000 of their rental property losses (i.e., passive activity losses) against their other income on Schedule E (Supplemental Income and Loss) if their AGI is less than $150,000. I was not sure if that $150,000 limit also applied if trying to offset losses in an LLC in which I am a member. It appears that it does in fact apply because the principal activity of the LLC is renting out of a gas station to an operator. I believe that if my LLC operated (rather than rented out) the gas station, the $150,000 limit would not be relevant.