Can I offset rental property losses against profits using Schedule E vs LLC for 2025 taxes?

You've got a slight misunderstanding about how Schedule E works. The good news is that you absolutely CAN net losses from one rental property against income from another on Schedule E. All your rental properties are combined together on the same Schedule E, and the net income or loss from all properties is what flows to your 1040. What you might be thinking of are the passive activity loss limitations. If your TOTAL rental activities result in a loss, those losses may be limited if your income is above certain thresholds (starting at $100,000 and fully phased out at $150,000 for most taxpayers). In that case, you can't use those excess losses to offset other types of income like your wages or investment income. As for the LLC question, simply forming an LLC doesn't change the tax treatment. A single-member LLC is disregarded for tax purposes, so you'd still report everything on Schedule E just like you do now. If you elected to have the LLC taxed as an S-Corp, you'd have additional complications without solving your loss issue.

After dealing with similar issues with my rental properties, I discovered taxr.ai (https://taxr.ai) and it's been a game-changer for managing my rental property documentation. I was confused about loss limitations and which expenses qualified for immediate deduction versus depreciation. Their software analyzed all my rental property docs and helped me identify several deductions I'd missed on previous years' returns. For your specific Schedule E vs LLC question, what I learned is that an LLC by itself doesn't change the tax treatment - it's about how you elect to have the LLC taxed. Their analysis showed me that maintaining separate records for each property was crucial regardless of how I structured ownership.

I was super skeptical about taxr.ai at first (like most things that claim to save on taxes), but after trying it for my four rental properties, I have to admit it helped immensely. I uploaded my property expense records and it flagged about $8,700 in deductions I would have missed. The most valuable part was sorting out which improvements were repairs (immediately deductible) versus capital improvements (depreciated over time). I had been incorrectly categorizing several expenses. It also helped clarify that while my properties could share an LLC for liability protection, that wouldn't change how losses are treated for tax purposes. For anyone with multiple rental properties, getting the documentation right makes a huge difference regardless of whether you use Schedule E or an LLC structure.

If you're struggling with IRS questions about rental property taxation, I highly recommend using Claimyr (https://claimyr.com). I spent WEEKS trying to reach the IRS to get clarity on some passive loss limitation questions for my rental properties. Their phone lines are completely jammed during tax season. I finally tried Claimyr after watching their demo (https://youtu.be/_kiP6q8DX5c) and they got me connected to an IRS agent in under 15 minutes. The agent confirmed that I could offset losses from one rental against income from another on Schedule E, but also explained exactly how the passive activity loss limitations would apply to my situation. Their service saved me hours of frustration and got me an answer straight from the IRS rather than relying on potentially outdated information online.

I have to publicly eat my words here. After my skeptical comment, I decided to try Claimyr as a test since I've been unable to reach the IRS about a passive loss question for my rental properties. Not only did it work, but I was connected to an IRS rep in about 20 minutes. The agent clarified that my understanding of Schedule E was wrong - I CAN combine all my rental properties on one Schedule E and offset losses from one property against income from others. What I can't do is take those losses against my regular W-2 income if I don't qualify as a real estate professional. This actually saved me from filing incorrectly. I was planning to create separate LLCs thinking it would help with the tax situation, but the IRS confirmed it wouldn't change how losses are treated. Would have wasted money on unnecessary LLC formation costs.

Just want to add that while LLCs don't change how rental income is taxed on your personal return, they DO provide valuable liability protection. I have 3 rentals each in separate LLCs to protect my personal assets and to prevent a lawsuit on one property from affecting the others. For tax purposes, I still file everything on Schedule E since my LLCs are single-member and disregarded for tax purposes. But the legal protection is worth the annual LLC fees in my state ($125/year per LLC in my case).

One thing nobody's mentioned yet - if your overall rental losses are limited by the passive activity rules, those losses aren't lost forever! They get suspended and carried forward to future tax years when you either: 1. Have passive income to offset them against 2. Dispose of the entire passive activity in a fully taxable transaction I had suspended losses building up for years that I was finally able to use when I sold one of my properties last year. It significantly reduced my tax bill on the sale!

Great discussion here! I'm dealing with a similar situation - 3 rental properties where one is consistently losing money due to high maintenance costs. One additional consideration I haven't seen mentioned is the material participation rules. Even if you don't qualify as a real estate professional, you might still be able to deduct up to $25,000 in rental losses against your ordinary income if you "actively participate" in the rental activity and your adjusted gross income is under $100,000 (phases out completely at $150,000). Active participation is much easier to meet than real estate professional status - you just need to make management decisions like approving tenants, setting rental terms, or approving repairs. You don't need to do the day-to-day work yourself. This $25,000 allowance applies to your combined rental activities, so losses from your problem properties can offset both income from profitable properties AND up to $25k of your regular income if you meet the requirements. Might be worth looking into if you're not already taking advantage of this!

This is such a valuable thread! I'm in a similar boat with multiple rental properties and have been confused about the tax implications. One thing I'd add based on my experience is the importance of keeping detailed records for each property, especially when you have some profitable and some losing money. Even though you combine everything on Schedule E, maintaining separate books for each property helps you track which ones are consistently problematic and make better business decisions. Also, for those dealing with major repairs like the roof mentioned in the original post - make sure you understand the difference between repairs (immediately deductible) and improvements (must be depreciated). A roof replacement is typically considered an improvement that gets depreciated over 27.5 years, not a repair you can deduct all at once. This distinction can significantly impact your current year losses. The active participation rule mentioned by Adriana is huge - that $25,000 allowance has saved me thousands in taxes over the years. Just make sure you document your management activities in case the IRS ever questions whether you truly actively participate.

This thread has been incredibly informative! I'm in a very similar situation with 4 rental properties - 2 profitable and 2 that have been cash drains this year due to major repairs and vacancy issues. The clarification about Schedule E allowing you to offset losses from one property against gains from another is huge for me. I was under the same misconception as the original poster and thought each property had to stand alone. Now I understand that it's the TOTAL rental activity that matters for the passive loss limitations, not individual properties. The active participation rule is also news to me and sounds like it could save me a significant amount in taxes. I definitely qualify since I handle all tenant communications, approve repairs, and make all major decisions myself. My AGI is around $95k so I should get the full $25k allowance. One question though - if I have a net rental loss of say $15k after combining all properties, and I can use that against my W-2 income due to active participation, do I still need to worry about the passive activity loss carryforward rules? Or does the active participation exception mean those losses get used immediately rather than suspended? Also appreciate all the mentions of proper record keeping. I've been pretty sloppy about separating expenses by property and this discussion has convinced me I need to get more organized before next tax season!