Can I take passive depreciation as a QREP against active income?

Question

BP - need some help here!I'm a full time investor focused Realtor in the Atlanta metro. I invested in a smaller multifamily deal (24 units) with my buddy where I am 100% passive. We've gotten our K1 back and there is a decent chunk of bonus depreciation there. I will not meet the matierial participation requirements for this deal. I'm waiting for feedback from my accountant on this one but wanted to see what the community has to say about this.Am I able to take this 'passive loss' against my 'active income'?

TIA!

Stephen Nelson · Answer

If you don't materially participate in the real estate rental activity, no, you don't get to deduct the passive losses.

You need to wait until you have passive income or you dispose of the activity.

Ashish Acharya · Answer

@Josh Bowser Since you're 100% passive in the 24-unit deal and don’t meet material participation, the bonus depreciation creates a passive loss, which generally can’t offset active income like Realtor commissions. Even if you qualify as a Real Estate Professional (REPS), you must also materially participate in the activity or properly group it with your active rentals to use the loss against active income. Without that, the loss is suspended and carried forward to offset future passive income or gains. If your modified AGI is under $150K, you may qualify for a limited $25K passive loss deduction, but this phases out quickly. Talk to a real estate CPA about grouping or election strategies to potentially unlock those losses.This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Michael Plaks · Answer

Here is a detailed description of your tax situation:

https://www.biggerpockets.com/forums/51-tax-legal-issues-con...

Natalie Kolodij · Answer

Do you have a grouping election in place for your rental activities? If so discuss that with your CPA. There is an impact that comes into play with having a limited partnership interest within the rental grouping and if material participation in the grouped rental activity is still possible.

Corby Goade · Answer

Not a tax pro, so obviously get advice from yours.

If you are a full time realtor, you should have REPS- if so, you should be able to use those losses against your income as an agent and investor.

Can I take passive depreciation as a QREP against active income?

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