Your use of the rental property is requiring it to be treated as a home, and therefore a non-passive activity.
This means that the rental expenses for the property must be prorated based on the time the property was rented and the time it was used as your home. The rental portion of certain expenses (such as mortgage interest and real estate taxes) will be deductible on the current year's return. The rental portion of operating expenses (such as repairs, maintenance, and utilities) may be limited depending on the rental income. If these expenses are limited and not allowed to be claimed on the current year's return, they will be carried over to the next year.
The limitation you are seeing on your return is most likely the result of the division of the expenses between rental/personal use and the expenses that can be deducted and those that must be carried forward instead of a limitation based on your AGI.
Take a closer look at the Schedule E Worksheet for your property that is included as part of your tax return and the math behind the scenes may make more sense.
Also, to learn more about this subject, see IRS Publication 527 Residential Rental Property. Your situation is fully discussed in section 5, along with some worksheets used to prorate the allowable expenses.
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