This is a very, very common situation. 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.
