How to handle income from rental properties
made on money,” says Ed Slott, a CPA and IRA expert. Interest and dividends are also forms of passive income.
Slott suggests a couple of workarounds: You could form your own property-management company as a corporation or limited-liability company and become its employee. Then you could have a solo 401(k) (see www.irs.gov/ retirement-plans/one-participant-401kplans).
Or, if you file a joint return with your spouse and your spouse has earned income, you could each contribute to your own IRAs, as long as your spouse earns enough income to cover each of your contributions. In that case, you can use your rental income to fund your spousal IRA.
For 2019 and 2020, your total annual contributions to your traditional and Roth IRAs can't exceed $6,000 ($7,000 if you're age 50 or older) or your taxable compensation for the year, if your compensation was less than that dollar limit.
If you and your spouse are funding a regular and spousal IRA, the combined contributions can't exceed the taxable compensation that you report on your joint return.
Note that your Roth IRA contribution might be limited based on your filing status and income. Singles can make a full or partial contribution to a Roth if their income is up to $137,000 in 2019 and $139,000 in 2020. Married joint filers are eligible to make a full or partial contribution to a Roth if their income is up to $203,000 for 2019 and $206,000 in 2020.
You can make a contribution for 2019 up until April 15, 2020(see www.irs.gov/ forms-pubs/about-publication-590-a).