are passive rental losses deductible
Passive income is income from business activities in which you don't materially participate, including other rental activities.As always is the case in tax law, there are exceptions. Taxpayers whose modified adjusted gross income, or MAGI, is less than $100,000 can claim up to $25,000 in rental losses. If you used the rental property as a home during the year, any income, deductions, gain, or loss allocable to such use shall not be taken into account for purposes of the passive activity loss limitation. Instead, follow the rules explained in chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). You cannot deduct passive losses if you do not have any net income from your property rental for the tax year. Passive losses cannot reduce your income from wages, but you can defer the losses to future tax years or deduct any losses carried forward when selling the rental house that generated the loss. For a discussion of activities that are not considered rental activities, see Rental Activities in Publication 925. Deductions or losses from passive activities are limited. You generally cannot offset income, other than passive income, with losses from passive activities. Nor can you offset taxes on income, other than passive income, with credits resulting from passive activities. At $150,000, the reduction to the cap is the full $25,000, which is your situation. Any losses you can't claim are carried over to future years and allowed as a deduction against passive income, including gain on the sale of the property. If your income were to go below the thresholds, then you would also be able to claim the losses, including those carried over. See IRS Publication 925 for additional information. There is a group of taxpayers who are allowed to fully deduct losses from rental real estate. These are the people who are considered real estate professionals. Page 2 of Schedule E is used to report income or loss from partnerships, S corporations, estates, trusts, and real estate mortgage investment conduits. If you need to use page 2 of Schedule E, be sure to use page 2 of the same Schedule E you used to enter your rental activity on page 1. A. That is generally correct — for most taxpayers. Rental activities are considered passive activities, and a loss on a passive activity is not deductible against non-passive income, such as wages. A special rule lets you deduct up to $25,000 of losses from rental real estate in which you actively participate. If you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service, you report your rental income and expenses on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Rental real estate is considered a passive activity, the losses from which are only allowed against passive income. Passive income is income from business activities in which you don't materially participate, including other rental activities. As always is the case in tax law, there are exceptions.
No