The passive loss rules do not allow deducting rental real estate losses against other active incomes. But there are certain exceptions and limitations.
- The first is for real estate professionals who spend more than 50% of their working hours and over 750 hours each year materially participating in real estate as developers, brokers, landlords, etc.
- Joint filers who both participate in real estate can’t combine their hours to meet this test.
- Deducting limitation applies for people who actively participate in the rental activity. Only up to $25,000 of rental losses can be taken. Furthermore, this amount phases out as modified adjusted gross income (AGI) exceeds $100,000. For AGI exceeding $ 150,000, losses will completely be phased out and will be stored as ‘suspended carry over losses to the futures years until this property will be sold or discarded. This carry over loss will be eventually offsetting against other active incomes to reduce potential tax liability.
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