Passive Activity Loss On Rental Property

However since the taxpayers in this case qualified as real estate professionals they could deduct their rental activity losses against other income.

Passive activity loss on rental property. This passive activity income from property b can be offset by the 6 400 loss from property a so brett reports a taxable profit of only a net 1 100. A rental activity is a passive activity even if you materially participated in that activity unless you materially participated as a real estate professional see below. An activity is a rental activity if tangible property is used by customers or held for use by customers and the gross income or expected gross income from the activity. Consequently most losses from a rental activity are deductible only against income from the rental activity or some other activity with net passive income.

If you are the owner or landlord of a rental property a special rental loss offset lets you apply up to 25 000 of passive activity losses against your normal income. To qualify your modified adjusted gross income must not exceed 100 000 for the year.