Offset Rules
Offset Rules
1. Hobby losses: hobby expenses can be used to offset hobby income.
2. Built in loss on property converted to business use: TP’s original adjusted basis (reduced by depreciation claimed) so that the built-in loss (BIL) can be used to offset (i.e. reduce) a gain on a sale, but may not create or increase a loss.
3. Losses between related parties: Losses between related parties are not currently deductible, but the seller’s loss is discontinued and transferred to the related purchaser.
Related purchaser may use the transferred loss to offset gain on subsequent disposition. I.e. transferred loss cannot create/increase a loss on subsequent disposition by the related party purchaser.
4. Primary personal use rental property: Limited Deductions re: allocable expenses to rental income
i.e. TP can’t deduct a loss but, TP can always deduct the full amount of his/her real estate taxes and mortgage interest on the property
Treat as “Primarily Personal Use” if personal use is:
More than 14 days or 10% of the number of days rented, whichever is greater
5. Investment interest income: defined: aka “margin interest” current year limited to new investment income
6. Investment interest expense: If you borrow money to buy property you hold for investment, the interest you pay is investment interest. You can deduct investment interest subject to the limit discussed later. Investment interest does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity.
7. Gambling losses: You may deduct gambling losses only if you itemize deductions. However, the amount of losses you deduct may not be more than the amount of gambling income reported on your return.
8. Office in Home: offset rule limits home office deduction. The sequencing of home office deductions is the same as the hobby loss and vacation rental home sequence of deductions vs. carry over excess home office expense
9.
1. Hobby losses: hobby expenses can be used to offset hobby income.
2. Built in loss on property converted to business use: TP’s original adjusted basis (reduced by depreciation claimed) so that the built-in loss (BIL) can be used to offset (i.e. reduce) a gain on a sale, but may not create or increase a loss.
3. Losses between related parties: Losses between related parties are not currently deductible, but the seller’s loss is discontinued and transferred to the related purchaser.
Related purchaser may use the transferred loss to offset gain on subsequent disposition. I.e. transferred loss cannot create/increase a loss on subsequent disposition by the related party purchaser.
4. Primary personal use rental property: Limited Deductions re: allocable expenses to rental income
i.e. TP can’t deduct a loss but, TP can always deduct the full amount of his/her real estate taxes and mortgage interest on the property
Treat as “Primarily Personal Use” if personal use is:
More than 14 days or 10% of the number of days rented, whichever is greater
5. Investment interest income: defined: aka “margin interest” current year limited to new investment income
6. Investment interest expense: If you borrow money to buy property you hold for investment, the interest you pay is investment interest. You can deduct investment interest subject to the limit discussed later. Investment interest does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity.
7. Gambling losses: You may deduct gambling losses only if you itemize deductions. However, the amount of losses you deduct may not be more than the amount of gambling income reported on your return.
8. Office in Home: offset rule limits home office deduction. The sequencing of home office deductions is the same as the hobby loss and vacation rental home sequence of deductions vs. carry over excess home office expense
9.