Some background on this. Years ago, people with very high incomes would buy "rental" properties to generate losses to offset those losses. In reality, they were fronts for vacation homes. The IRS started eliminating writing off passive losses against income other than passive income. With some jockeying by the real estate industry came the exceptions we have now (the $25,000 exemption and real estate professional). But also, out of this, the IRS looks for profit out of rentals out of a period of time. It used to be 2 out of 5 years, now it isn't so cut and dried but it has to show a pattern leading to profitability otherwise the property can be deemed a hobby activity, in other words a vacation property. Then your deductions are limited. If it is a rental property, the IRS wants to see a profit. This is the fundamental reason why rental expenses are deductible against rental income not active income. There is the $25,000 exception if your income qualifies, but that is an exception and should not be looked upon as a fundamental business practice. Look to get a profit within a few years.
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Originally Posted by oregonwoodsmoke
I'm a bit puzzled by the question. You can only deduct a business expense one time. Two people can't deduct the same expense off of two different incomes. If you don't want to be married and filing jointly, I suppose there are two options. You could file married filing separately (and still business expenses only come off of one income), or you could get divorced so that both incomes fall below the ceiling.
It's no use expecting logic from the tax system. All you do is to make yourself crazy with no effect whatsoever on the IRS or Congress.
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On this particular deduction, what Quaker is referring to, if his spouse and him divorced and split the properties, they could each take the $25,000 deduction. If they stayed married and filed separately, they could only take a $12,500 deduction however.
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