Are Losses from My Inherited Rental Property Tax Deductible Beyond Rental Income?

Thanks for the explanation! So what if OP is considered a "real estate professional" for tax purposes? I've heard that changes things. Also, does the fact that it was inherited make any difference with the passive activity rules?

Great questions! If someone qualifies as a "real estate professional," the rental activities are no longer automatically considered passive. To qualify, you must spend more than 750 hours annually in real estate activities and more than half of your working time in real property businesses. If you meet these requirements, rental losses could potentially offset any type of income, including dividends and capital gains. The fact that the property was inherited doesn't change the passive activity rules themselves. The stepped-up basis is beneficial for calculating depreciation (which creates the loss), but the classification of the activity as passive or non-passive depends on your level of participation, not how you acquired it.

How exactly does taxr.ai work? Do you just upload your tax docs and it tells you what's deductible? I'm hesitant to share financial info with random websites.

Did they give you actual tax advice or just information? I've been looking for something that can tell me specifically what applies to my situation without paying an accountant $300/hour.

It's a document analysis tool that uses AI to review your tax papers and transcripts. You upload the relevant documents and it extracts the important info and explains how tax rules apply to your specific situation. It's not just pulling generic advice from IRS publications - it's actually analyzing your specific numbers. The system is secure and doesn't store your documents long-term. They just use them to provide you with personalized analysis of your tax situation according to IRS rules. It gave me specific guidance about my rental property losses and which income sources I could deduct against.

Wait, there's actually a way to skip the IRS phone queue? How does that even work? Last time I tried calling about my rental, I gave up after being on hold for 2 hours.

This sounds like a scam. There's no way to "skip the line" with a government agency. They'd have everyone doing it if it actually worked.

The service works by using an automated system that continually calls the IRS and navigates the initial menu options. Once it reaches a human agent, it calls you and connects you directly. It's basically doing the waiting for you. It's absolutely legitimate - they don't have any special "inside access" to the IRS or anything like that. They're just using technology to handle the tedious part of waiting on hold. I've used it twice for complex questions about my rental property losses, and both times I got through to an agent who was able to give me specific guidance based on my situation.

Could you explain more about the "at-risk" rules? If the property was inherited with no mortgage, how would that affect being "at risk"?

The "at-risk" rules basically limit your deductible losses to the amount you have financially invested in the activity that you could potentially lose. For an inherited property with no mortgage, your at-risk amount would typically include the stepped-up basis of the property, plus any additional money you've invested in improvements or maintenance. Since your basis is $1.6M (according to your post), your at-risk amount is substantial, so it's unlikely to limit your losses in the near term. This is different from someone who might have acquired a property with little money down and a large mortgage, where their at-risk amount might be much smaller than the property value.

I used TurboTax last year for my rental property. It asks questions about your participation level and automatically applies the passive activity rules. It worked well for my situation, but mine was pretty straightforward. With your large stepped-up basis and significant depreciation, you might want to use their Live version where you can talk to a tax expert during the process.