HACKITOFF has it right. Rental income/loss is by definition Passive. Passive losses can only offset passive income.
HOWEVER:
There are two exceptions that allow taxpayers to use passive losses to offset earned income:
1. The passive loss allowance:
Allows taxpayers with a Modified Adjusted Gross Income (MAGI) of less than $100,000 to deduct up to $25,000 of passive losses against their other income. This $25,000 deduction is phased out $1 for every $2 that MAGI increases above $100,000. This means that once a taxpayer’s MAGI exceeds $150,000, the passive loss allowance will have been completely phased out.
2. Qualifying as a Real Estate Professional. You must meet the following standards:
A. More than one-half of the personal services performed in trades or businesses by the taxpayer during the tax year are performed in real property trades or businesses in which the taxpayer materially participates
AND
B. The taxpayer performs more than 750 hours of services during the tax year in real property trades or businesses in which the taxpayer materially participates.
If the taxpayer does not qualify for either exception the Passive Losses become "Suspended Losses" and are carried forward to offset subsequent Passive Income or until disposition of the asset...in which case the suspended loss(es) are added to the Tax Basis of the asset
P.Ray EA
Intuit -TurboTax -xTest Team
Tax Accountant: How many dependents do you have?
Client: Well, that depends. How many do I need this year?
