Investment Property

Investing in rental properties through platforms like Arrived.com will introduce new elements to your tax return. You'll report your share of rental income and deductible expenses, typically detailed on a Schedule K-1 you receive from the investment entity. Key deductions often include property taxes, insurance, management fees, and importantly, depreciation. Depreciation is a non-cash expense that can significantly reduce your taxable rental income, potentially even creating a tax loss on paper. However, rental real estate is generally considered a passive activity. Losses from passive activities can usually only offset passive income. There's an exception allowing taxpayers who "actively participate" and meet certain income thresholds to deduct up to $25,000 of passive losses against non-passive income (like wages). Whether you qualify for this "active participation" exception depends on your specific involvement and Adjusted Gross Income. If your deductions, especially depreciation, exceed your rental income and you can utilize the passive loss exception, it could reduce your overall taxable income, potentially leading to a larger refund or lower tax liability. However, if losses are limited by passive activity rules, they are generally carried forward to future years.