There is a income limitation on rental losses taken on a return. Your combined income may be over the income limitation.
The losses that are not deducted are tracked on the return. If your income would drop in a future year and/or you sell the property these losses would be applied to the sale.
Rental losses are always classified as "passive losses" for tax purposes. This greatly limits your ability to deduct them because passive losses can only be used to offset passive income. They can't be deducted from income you earn from a job or investments such as stock or savings accounts.
Exception to Passive Loss Rules
- your income is small enough that you can use the $25,000 annual rental loss allowance.
Property owners with modified adjusted gross incomes of $100,000 or less may deduct up to $25,000 in rental real estate losses per year if they "actively participate" in the rental activity. This allowance is phased out for taxpayers whose MAGI exceeds $100,000 and eliminated entirely when it exceeds $150,000.
TurboTax has an article on this subject that goes into more detail: Real Estate Tax and Rental Property
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MichaelL1
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