We are in the process of converting our primary residence to a rental property. A friend told us that in the year we convert we can have no better than a net zero tax effect (essentially we will only be able write off the interest paid this year to the extent of the rental income). Is this true?

Zip Code: jenzellem@hotmail.com

Unfortunately, if your income exceeds $150,000, you're not entitled to deduct your rental losses that year. Instead, you'll carry them forward, and deduct them against future rental profits, in years that your income is less than $150,000, or the year that you sell the property.

If you own multiple properties, then the losses from this property can be used to offset the profits of other properties - including a gain realized on the sale of the second property.

If your income is less than $100,000, you can claim up to $25,000 in losses in any year. Between $100,000 and $150,000 of income, the maximum amount of rental losses you can claim phases out ratably. So if your income is $125,000, you could deduct up to $12,500 in losses that year.

Zip Code: cpa@mdtaxes.com