Publication 17
taxmap/pub17/p17-048.htm#en_us_publink1000171747If you have a loss from your rental real estate activity, two sets of rules may limit the amount of loss you can deduct. You must consider these rules in the order shown
below.
- At-risk rules. These rules are applied first if there is investment in your rental real estate activity for which you are not at risk. This applies only if the real property was placed in service after 1986.
- Passive activity limits. Generally, rental real estate activities are considered passive activities and losses are not deductible unless you have income from other passive activities to offset them. However, there are
exceptions.
taxmap/pub17/p17-048.htm#en_us_publink1000171753You may be subject to the at-risk rules if you have:
- A loss from an activity carried on as a trade or business or for the production of income,
and
- Amounts invested in the activity for which you are not fully at
risk.
Losses from holding real property (other than mineral property) placed in service before 1987 are not subject to the at-risk rules.
In most cases, any loss from an activity subject to the at-risk rules is allowed only to the extent of the total amount you have at risk in the activity at the end of the tax year. You are considered at risk in an activity to the extent of cash and the adjusted basis of other property you contributed to the activity and certain amounts borrowed for use in the activity. See Publication
925 for more information.
taxmap/pub17/p17-048.htm#en_us_publink1000171754In most cases, all rental real estate activities (except those of certain real estate professionals, discussed later) are passive activities. For this purpose, a rental activity is an activity from which you receive income mainly for the use of tangible property, rather than for services.
taxmap/pub17/p17-048.htm#en_us_publink1000171755
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. Any excess loss or credit is carried forward
to the next tax year.
For a detailed discussion of these rules, see Publication
925.
You may have to complete Form 8582 to figure the amount of any passive activity loss for the current tax year for all activities and the amount of the passive activity loss allowed on your tax
return.
taxmap/pub17/p17-048.htm#en_us_publink1000171756Rental activities in which you materially participated during the year are not passive activities if, for that year, you were a real estate professional. For a detailed discussion of the requirements, see Publication
527. For a detailed discussion of material participation, see Publication
925.
taxmap/pub17/p17-048.htm#en_us_publink1000171757If you or your spouse actively participated in a passive rental real estate activity, you can deduct up to $25,000 of loss from the activity from your nonpassive income. This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. Similarly, you can offset credits from the activity against the tax on up to $25,000 of nonpassive income after taking into account any losses allowed under this exception.
taxmap/pub17/p17-048.htm#en_us_publink1000171758You actively participated in a rental real estate activity if you (and your spouse) owned at least 10% of the rental property and you made management decisions or arranged for others to provide services (such as repairs) in a significant and
bona fide
sense. Management decisions that may count as active participation include
approving new tenants, deciding on rental terms, approving expenditures, and
similar decisions.
taxmap/pub17/p17-048.htm#en_us_publink1000171759The maximum special allowance is:
- $25,000 for single individuals and married individuals filing a joint return for the tax
year,
- $12,500 for married individuals who file separate returns for the tax year and lived apart from their spouses at all times during the tax year,
and
- $25,000 for a qualifying estate reduced by the special allowance for which the surviving spouse
qualified.
If your modified adjusted gross income (MAGI) is $100,000 or less ($50,000 or less if married filing separately), you can deduct your loss up to the amount specified above. If your MAGI is more than $100,000 (more than $50,000 if married filing separately), your special allowance is limited to 50% of the difference between $150,000 ($75,000 if married filing separately) and your MAGI.
Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special
allowance.
taxmap/pub17/p17-048.htm#en_us_publink1000171760See Publication
925
for more information on the passive loss limits, including information on the
treatment of unused disallowed passive losses and credits and the treatment of
gains and losses realized on the disposition of a passive activity.