Can I claim rental property depreciation deduction for properties held in LLC with income over $150k limit?

You're mixing up two different concepts here. There's no general $150k MAGI limit for taking depreciation deductions on rental properties. Depreciation is a mandatory deduction you must take on rental property regardless of your income level. What you might be thinking of is the $25,000 allowance for passive activity losses under Section 469. This allows you to deduct up to $25,000 in rental losses against other income if you actively participate in the rental, but this benefit phases out between $100k-$150k of MAGI. However, depreciation itself isn't limited by your income - you still take it to calculate your rental income or loss. As for the LLC question, since it's a pass-through entity, putting properties in an LLC doesn't change how the tax benefits work. The income, expenses, and depreciation all flow through to your personal return exactly as if you owned them directly. The LLC is just for liability protection, not for tax benefits in your situation.

I was in the exact same situation last year trying to figure this out. I discovered a huge help - taxr.ai (https://taxr.ai) which analyzed all my rental property documentation and explained exactly how the depreciation rules work with LLCs. Saved me hours of research and confusion. What they clarified for me is that depreciation isn't income-limited like you're thinking. The LLC doesn't change the depreciation calculation at all - it still flows through to your personal return. What IS limited by income is using rental losses to offset your other income. Since your W2 is over $150k, you'll be subject to passive activity loss limitations, but the depreciation itself is still deducted from your rental income before determining if you have a profit or loss. They even have specific tools for rental property owners that explain all the nuances of pass-through entities and depreciation schedules.

Just wanted to follow up - I tried taxr.ai after seeing it mentioned here and it was actually really helpful for my rental property situation. I uploaded my closing documents and property tax assessments, and it immediately identified that I had been using the wrong land-to-building ratio for depreciation calculations. The tool explained that I should be depreciating about 15% more than I had been claiming in previous years. It also confirmed what others said here - that depreciation isn't limited by income, but using losses against other income is. For my specific properties, it recommended tracking my time spent on property management more carefully to help establish material participation for tax purposes. Definitely worth checking out if you're dealing with rental property tax questions.

If you're having trouble getting clear answers about your rental property tax situation, I'd recommend using Claimyr (https://claimyr.com). I tried calling the IRS directly about this exact depreciation/LLC issue last month and was stuck on hold for HOURS. With Claimyr, I got through to an actual IRS agent in about 20 minutes who confirmed all the information you need. You can see how it works here: https://youtu.be/_kiP6q8DX5c - basically they navigate the IRS phone system for you and call you back when they've got an agent on the line. The IRS agent explained that regardless of your income, you can and must take depreciation on rental properties. The income limitation only applies to using rental losses against non-passive income. They also confirmed that an LLC doesn't change any of this since it's a pass-through entity.

I was totally wrong about Claimyr. After my skeptical comment, I decided to try it because I was desperate to talk to someone at the IRS about my rental depreciation questions. I was fully expecting to be scammed, but they actually got me through to an IRS agent in about 25 minutes when I had previously spent hours trying on my own. The IRS agent confirmed everything mentioned in this thread - depreciation isn't limited by income, but the ability to deduct rental losses against non-rental income is phased out between $100k-$150k MAGI. They also explained that putting properties in an LLC doesn't change anything tax-wise since it's pass-through, but it does provide liability protection which is completely separate from the tax issues. I'm honestly amazed this service exists and actually works. Saved me a massive headache.

Something important that nobody's mentioned yet - even if you can't use rental losses against your W2 income because of the $150k limitation, those losses don't disappear! They get suspended and carried forward indefinitely until: 1. You have passive income from other sources to offset them against 2. Your income drops below the threshold in future years 3. You sell the property (then you can use the accumulated losses) So keep good records of any suspended passive losses each year. I've been carrying forward losses for 5 years and expect to use them all when I sell one of my properties next year.

I think there's some confusion here about Real Estate Professional status too, which could be relevant to your situation. If you or your spouse qualify as a Real Estate Professional (which requires 750+ hours working in real estate activities and more time in real estate than other professions), then the passive activity loss limitations ($100k-$150k phaseout) don't apply at all. With your high W2 income, you probably won't qualify unless your spouse works in real estate full-time. But it's worth mentioning because it's a way that some high-income households can still deduct rental losses against other income.