Qualifying for Go Zone Bonus Depreciation Case 2: Using AGI

Do you qualify for the Go Zone Bonus Depreciation? You might check your AGI (Adjusted gross income).

As we discussed in Go Zone Bonus Depreciation Case 1 on qualifying by being a real estate professional, the IRS treats most rental activities as passive, and passive losses can be offset only by passive income for many taxpayers.

$150,000 AGI is a Magic Number for the Go Zone Bonus Depreciation

If an individual is a “qualifying taxpayer;” that is, a real estate professional, the activity is considered nonpassive, thus allowing losses from qualifying real estate activities to offset other nonpassive income such as wages, interest, dividends, capital gains, trade or business income, etc.

However, for taxpayers having adjusted gross incomes less than $100,000, there is another option. AGI is your, and your spouses income if married, with deductions removed. This AGI is a standard line item on your tax return. There is a special allowance that allows you to deduct up to $25,000 in depreciation loss from your regular income.

For taxpayers between $100,000 and $150,000, there is a special phase out rule. Remember, you will still need to meet material participation requirements which are also found in Publication 925.

Generally these can be meet with proper structuring and logging of hours. In addition to tax implications, taxpayers in this bracket should also remember that this may be a great way to enter into a longer term, appreciating asset to grow future wealth.

There are many ways to reduce your tax liability. The Go Zone bonus depreciation may be one of the best to come around in a long time, especially if you're in a position to take advantage of it fully. We don't recommend that you keep your AGI below the minimum to qualify. Instead, we suggest you do the little it might take to become a real estate professional.