Taxpayer is an active participant (not real estate professional) and Turbo Tax won't allow a loss from Sch. E to offset nonpassive/W-2 income.

[M-MTax]

You've got to materially participate as a real estate pro to get the nonpassive offset.

[Carl]

Even I tend to get confused at times, between the "material participation" requirement, and the "actively involved" requirement. If you check out IRS Pub 527 Chapter 3 page 13, section "Passive Activity Limits" here you'll see the requirement to be a real estate professional that materially participates as such. So being only actively involved is not always enough. So unless something in IRS Pub 295  applies, the ability to claim passive income against other ordinary income may not be possible.

[Mike9241]

under the Passive Activity Loss rules for real estate, an active participant can take losses up to $25,000 but only if modified adjusted gross income is $150,000 or less. there should be form 8582 in your tax return which computes the allowable loss if any. look at part II