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February 24, 2024 | read

When Rentals Do Not Qualify as a Business

Brandon Hall

When Rentals Do Not Qualify as a Business

If your activities qualify as an investor and not as a business owner, you may lose the ability to claim the tax deductions listed below.

Our clients who have crossed the line into investor activities typically do so when they are:

  • Investing in mortgage notes passively
  • Investing as an LP in real estate syndications
  • Have a small portfolio of rental units that is leased out and doesn’t require much time to manage
  • Owns triple net lease properties
  • Buys and holds land for future sale

The tax deductions you will lose if your activities qualify as an investor rather than business owner are as follows:

  • Passive losses from real estate – investors can only deduct $3,000 per year in capital losses
  • Home office deduction – investors cannot deduct their home office because they are not engaged in a trade or business
  • Start-up costs
  • Section 179 expensing
  • Conventions and seminars

In order to deduct the above expenses, you must be engaged in business for a profit motive. See this LINK for an article detailing how you can do that.

Have questions?

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