Rental Real Estate Loss Allowance making over $150k...

3 Replies

Can someone better help me understand how the Rental REal Estate Loss Allowance works? I was surprised to find out I'm going to owe $3,800 in taxes this year. I have just over $17,000 in losses from our rental property on paper, but because my wife and I make over $150,000 via W2s we apparently can't take advantage of this loss? Is this something that comes back when the house is sold or something? How does this work exactly...

Originally posted by @Eric P. :

Can someone better help me understand how the Rental REal Estate Loss Allowance works? I was surprised to find out I'm going to owe $3,800 in taxes this year. I have just over $17,000 in losses from our rental property on paper, but because my wife and I make over $150,000 via W2s we apparently can't take advantage of this loss? Is this something that comes back when the house is sold or something? How does this work exactly...

Passive activity losses (PALs) generally are deductible only 

(1) against income from passive activities, 

(2) when the entire interest in a passive activity is disposed of in a taxable transaction, or
(3) under the $25,000 rental loss privilege for qualified rental activities (subject to the $100,000 AGI phase-out and is lost completely at 150k) 




The general is a rule allowing up to $25,000 of active participation(see below) rental real estate losses as a deduction against nonpassive income.

The taxpayer must make management decisions with regard to the property, have at least a 10% ownership share in the property, and the cannot be a limited partner. Furthermore, a spouse's ownership interest in the property is taken into account when computing the taxpayer's 10% minimum ownership interest

You will be deemed to be actively participating if you make management decisions in a significant and bona fide sense. Management decisions that are relevant in determining whether you actively participate include approving new tenants, deciding on rental terms, approving capital or repair expenditures, and other similar decisions.

Suspended Passive activity is also eligible for 25k deduction if taxpayer becomes active this year. So if you are expecting higher income next year, dont be active this year and carry passive income to next year and be active.

@Eric P.

Husband and I are in the same situation. You aren’t going to reap those losses until you sell the house. On selling, you can take credit for the losses and the losses will be “deducted” from the profit so you won’t pay all of taxes on the profit.

So I keep up with those losses and just know I’m practicing my patience skills. Lol. (But grateful that we have wonderful jobs).

Could you give me an example?  Like if I made $8,000 in cashflow profits on a property last year, showed $17,000 in losses and made $150,000.  Am I writing off a portion for the $8,000 but not the rest?