Originally Posted by Piobaire
I'm not a tax expert and have a CPA handle my stuff. Take what I'm about to say with a grain of salt and seek your own professional advice.
Rental units cannot deduct passive loss during ownership but only upon sale of the asset. The depreciation is of course part of this so I have several years of accumulated depreciation and any other passive loss (rental income did not cover operating expenses + carry). Now, I'll have some capital gains due to the depreciated value of the asset on the books, but I happen to have a pool of capital loss from some prior transactions (the stuff you can only deduct at 3k per year) and will use that to offset any capital gains dollar per dollar. Near as I can figure this year's return will be tasty.
I'm not sure I follow how you get from offsetting capital gains to having a true tax benefit on your returns but I'm sure that has to do with personal and perhaps somewhat unique circumstances which sounds like it's worked out well for you.
Originally Posted by venividivicibj
Even when rich people lose money they benefit : (
Interestingly, the limitations on passive activity losses are a counterexample of this sentiment.
Spoilered for anyone who cares. Warning: Spoiler! (Click to show)
This isn't intended to be tax advice and you should consult a CPA and the tax code and publications 527 and 925, etc. but generally speaking my high level understanding is that for passive losses associated with rental properties (including losses from depreciation which you are required to take), you can offset up to $25k of your ordinary income each year with these passive losses, unless your modified AGI is between $100k and $150k in which if phases out. Over $150k you cannot offset ordinary income and just carry it forward. So essentially for rich people (well people with high ordinary income) it's at best a wash because these losses can be difficult to monetize. For people with low enough AGI's (which could include high net worth financially independent people) there's a nice benefit although it's really limited to about $6 or 7k a year and you end up giving a lot of that back if you sell your depreciated property.
Most of the people I know with rental properties lament the fact that they can't take advantage of the passive activity loss because the AGI threshold is low. This could be another artifact of living in the bay area. Everything's expensive and people get paid comparatively more but brackets, thresholds, phaseouts, etc. are the same here as everywhere else.