If you have entered more rental expenses than rental income in TurboTax, and you are not seeing a net loss on your return, it may be because your income is higher than the limit for claiming a loss on rental real estate when it exceeds any other passive income.
As a general rule, rental properties are, by definition, passive activities and are subject to the passive activity loss rules. These rules are quite complex. In general, the passive activity rules limit your ability to offset other types of income with net passive losses.
But the good news is there is an exception: If you actively participate in a rental real estate activity, you can deduct up to $25,000 of your rental loss even though it’s passive. To actively participate means that you:
- own at least 10% of the property, and
- make major management decisions, such as approving new tenants, setting rental terms, approving improvements, and so forth. (No, you don't have to mow the lawn or answer middle-of-the-night phone calls from tenants about a backed-up toilet.)
But this exception phases out as your income rises.
- If you have modified Adjusted Gross Income over $100,000, the $25,000 rental real estate exception decreases by $0.50 for every dollar over $100,000.
- The exception is completely phased out when your modified adjusted gross income reaches $150,000.
See this TurboTax article and IRS Publication 527 for more information.
Check your entries in the Rental interview as well, to ensure that they are correct.
You can preview your return before filing to find out how your taxes were calculated and to view the forms that TurboTax has prepared from your entries. See here for details.
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