There's no problem taking the deductions against the rental income, because overall the property isn't showing a loss. There's one exception to the general rule that you may be able to take advantage of. For one, keep an eye on your adjusted gross income. If you can reduce it by making additional contributions to a Keogh plan, for instance, then doing so may also increase the write-offs you can take from your rental property. Another thing to watch out for is mortgage interest.
Mortgage interest is part of the passive loss calculation.
That means that if you can get away with borrowing less to make the purchase, then you'll have smaller non-deductible passive loss problems. By borrowing less, you may even be able to eliminate non-deductible passive losses completely. There are other interest strategies you may want to consider as we'll see in the next section. The deductibility of interest is one of the most complicated areas of the tax law. Before we go into how these rules affect your purchase of an investment home, it's helpful to review the rules generally.