Passive Activity Loss Rules Real Estate Professionals

1 one exception to this rule applies to real estate professionals.

Passive activity loss rules real estate professionals. Qualified real estate professionals can deduct up to 250 000 in rental losses if you are filing as single. To escape passive loss classification the landlord must qualify as a real estate professional and must materially participate in the rental activity. Income and losses arising from any rental activity are generally considered passive. Thus at first glance it appears the taxpayers took every necessary step to help ensure they could treat the real estate activities as nonpassive activities.

In general a rental real estate business is considered a passive activity. Under internal revenue code section 469 two tests must be met in order to be. In order to treat losses derived from rental real estate as ordinary a taxpayer must be considered a real estate professional and must materially participate in the rental activity. Keep in mind this is not the only way to avoid passive loss.

But qualified real estate professionals are permitted to deduct an unlimited amount of passive activity losses. To qualify your modified adjusted gross income must not exceed 100 000 for the year. Any rental real estate loss allowed because you materially participated in the rental activity as a real estate professional as discussed later under activities that aren t passive activities. If the taxpayer qualifies as a real estate professional the taxpayer s rental real estate activity escapes the per se rule otherwise applicable to rental activity.