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Schumpeter Reincarnate

Joined: 16 Feb 2007
Posts: 4392
Location: Maryland

Tax rule changes for rental property owners
PostPosted: Fri Mar 09, 2012 5:59 pm Reply with quoteBack to top

My idea for how to get real estate moving again, in 500 words or less:

There is a tax code provision that concerns whether or not losses from rental real estate can be written off as losses against non-passive income, like your salary (from a non-real estate related job). Right now this passive loss write-off is limited to $25K, and starts to phase out at income levels of $100,000, completely being eliminated at $150,000 (so, if you make over $150,000, you can not write off any rental real estate loses, except against capital gains when you sell the property). Additionally, there is a provision that says you must spend 500 hours per year personally working on/managing the property to qualify for the loss write-off. My proposal is to raise the income level in this IRS provision to $250,000, phasing completely out by $300,000, and reduce the hours of hands-on management required to 240 hours (20 hours per month) -- allowing for a greater number of rental real estate investors to write off their loses in the year that they occur.

The people in this country that are in a position to “absorb” some of this real estate glut – those with mortgages paid off, excellent credit scores, and enough disposable income to consider an investment property – likely exceed the $100,000/yr income threshold (hence the need to raise it to $250K). Additionally, the 500 hour requirement in the IRS code could be a limiting factor for many potential rental real estate investors, but 20 hours per month (240 hour/yr) certainly seems doable.

I really like that this idea “rewards” those that were prudent during the real estate bubble years (rather than creating moral hazzard, which seems to be where our politicians have been focused). But it also serves to help those who have lost their homes by bringing more rental properties to the market, which should ultimately serve to reduce rents, reduce the glut of vacant homes, and hopefully reduce the downward housing price spiral.

If this change were to be made, I believe that the influx of rental home investors could increase quite dramatically. I’ve taken an informal/antidotal survey of friends who are in similar situations, and the results indicate that there is something to this.

I'd be interested in hearing comments on this idea ...

"Socialism only works in two places: Heaven where they don't need it and h*ll where they already have it." -- Ronald Reagan
"Everybody, sooner or later, sits down to a banquet of consequences." -- Robert Louis Stevenson
“Gold is money. Everything else is credit.” -J.P. Morgan, testifying to Congress in 1912
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Joined: 21 Aug 2011
Posts: 9
Location: Atlanta

Tax Rule Changes for Rental Property Owners
PostPosted: Sat Mar 10, 2012 1:54 pm Reply with quoteBack to top

Oh the complexities of our tax code. Let's just toss the thousand+ pages of codified text and start over with something akin to an easy read "cookbook" for patriots. For once I might be able to tell what is truly my fair-share.
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