Losses from rental real estate are usually not deductible until you either have packing income or the property is sold.
When you have income from rental property, this is called a passive activity. Losses from passive activities typically can't be used to offset nonpassive income. Instead, they carry over each year until you have income from passive activities that can be offset. For example, if you have a profit in 2025 from your rental property, you can offset that profit with the 2024 loss to reduce your income.
The loss that you can't deduct in the current year is called a suspended loss. If your rental property never generates a profit, you can deduct the suspended losses in the year that you sell the property.
However, you may be able to deduct up to $25,000 your loss from your rental property if you actively participate in the operations of the rental property and your income is under $150,000.
For more information, see:
- Passive activities - losses and credits
- Publication 925
- Special $25,000 allowance
