Investors & landlords

This is a very, very common situation. More than likely the At-Risk Rules don't apply to you, however they are defined below. While not knowing your situation, it's usually a problem of "making too much money". If the explanation below doesn't apply, post some more details in the comment section.

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 you make major management decisions, such as approving new tenants, setting rental terms, approving improvements and so forth.

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.

Example:

Phil and Mary have modified Adjusted Gross Income of $90,000 and a rental loss for the year of $21,000. They actively participated in the rental. Since their modified Adjusted Gross Income is below the  $100,000 phase-out threshold, their entire rental loss is deductible even though it is a passive loss. If their loss had risen to $28,000, they would have been limited to a deductible loss of $25,000 for the  year—the nondeductible balance of $3,000 is  a passive loss that is carried over to future years until the passive loss tax rules allow it to be deducted.

If your income is above $150,000, any disallowed rental loss is carried forward to the next year along with all previous years' disallowed losses. Those can be applied to any subsequent passive income from that rental and are completely released for deduction upon sale of the property.

Some other things to check, some of which have been mentioned already:

1.Check your asset entry for correct place in service date and adjusted cost basis entry [separate land is not depreciated]

2.Passive losses are generally deductible only to the extent of passive income.

3.If you used a dwelling unit for personal purposes, it may be considered a “dwelling unit used as a home.” If it is, you cannot deduct rental expenses that are more than your rental income for the unit.[Personal use takes precedence]

4. If you had a net loss from renting the dwelling unit for the year, your deduction for certain rental expenses is limited. Home mortgage interest, taxes, advertising, insurance premium and other operating expenses are taken next.

Deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first categories.

5.If your MAGI is over $100,000, your maximum loss available decreases by $.50 for every dollar over $100,000).  The maximum loss is completely phased out at $150,000.

6.If you are NOT subject to income limitations and you do not have "active participation" then you are not allowed the loss. 

You may be subject to the at-risk rules if you have:

Losses from holding real property (other than mineral property) placed in service before 1987 are not subject to the at-risk rules.

In most cases, any loss from an activity subject to the at-risk rules is allowed only to the extent of the total amount you have at risk in the activity at the end of the tax year. You are considered at risk in an activity to the extent of cash and the adjusted basis of other property you contributed to the activity and certain amounts borrowed for use in the activity. Any loss that is disallowed because of the at-risk limits is treated as a deduction from the same activity in the next tax year. See Publication 925 for a discussion of the at-risk rules.

http://www.irs.gov/publications/p527/ch03.html#en_US_2014_publink1000219121 

A PAL occurs when total losses (including prior year unallowed losses) from all your passive activities exceed the total income from all your passive activities. 

http://www.irs.gov/instructions/i8582/ch01.html