If you selected that you 'actively participate' in the rental activity then you are allowed to deduct up to $25,000 in losses against your regular income. In order to actively participate in the rental activity you need to actively be making the management decisions for the property. These include
- Approving new tenants,
- Deciding on rental terms,
- Approving capital or repair expenditures, and
- Other similar decisions.
If you are actively participating then the system is correct and you should take the loss. If you are just paying a management company to make these decisions for you then you are not actively participating and you need to go back to the rental property and change that entry to make the losses be passive and carried forward.
@drosensweig
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