Prior Year Passive Losses & REP Status

[Gokhan Tektas]

Hello All, 

Hope this message finds everyone of you doing well! My question is simple and I hope some of you had some experience on that.  

My wife qualifies as a Real Estate Professional (REP) in 2024, but she did not qualify as a REP last year, and our rental losses were passive in prior years. Can I deduct prior year unallowed passive losses against my W-2 or active income, or are they still limited to rental income?

To simplify: Since my wife is a REP only for 2024, is the rental loss I can deduct from my W-2 limited to 2024 losses, or can I also deduct the passive losses carried forward from 2023?

Regards

Gokhan

[Natalie Kolodij]

Obtaining REP status does not release prior passive losses. 

It is now treated as a former passive activity and those prior losses can only offset income from that same activity going forward. 

If a grouping election is in place the lisses apply to the grouped activity as a whole.