Expert Alumni

Investors & landlords

Because rental real estate is considered a "Passive Activity," generally, you can only deduct expenses to the extent you have income. This is called the Passive Activity Loss Limitation.


TurboTax automatically calculates how much you are able to deduct, and if there are any "unused expenses" so to speak, then our software will automatically carry them forward into future years, until you are able to deduct all the expenses.


If you have a passive activity loss limitation and are not allowed to deduct all your expenses, the amounts that are carried forward are called "Suspended Loss Carryforwards"


The exception to the general rule that losses are not allowed is for those who are considered "Active Participants" in the rental real estate activity. Those active participants are allowed a loss up to $25,000. Also, Real Estate Professionals are another type of active participant and may also deduct losses from rental real estate and are NOT subject to the $25,000 limit like other active participants. See the below article for more info on active participation.


IRS Publication 925 on Passive Losses


Page 4 Explains:


"If you or your spouse actively participated in a passive rental real estate activity, the amount of the passive activity loss that’s disallowed is decreased and you therefore can deduct up to $25,000 of loss from the activity from your nonpassive income. This special allowance is an exception to the general rule disallowing the passive activity loss. Similarly, you can offset credits from the activity against the tax on up to $25,000 of nonpassive income after taking into account any losses allowed under this exception. If you’re married, filing a separate return, and lived apart from your spouse for the entire tax year, your special allowance can’t be more than $12,500. If you lived with your spouse at any time during the year and are filing a separate return, you can’t use the special allowance TIP to reduce your nonpassive income or tax on nonpassive income. The maximum special allowance is reduced if your modified adjusted gross income exceeds certain amounts."
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"