It just is not common for residential rental real estate to actually show a profit "on paper" each year, at tax filing time. It's more common for the SCH E to show a loss. The "General" rule of thumb is that passive losses in excess of the passive income get carried over to the next year. Therefore, those carry over losses will just continue to increase with each passing year.
One exception is that if you are "actively involved" in the passive activity in a tax year, then you can deduct a maximum of $25K against other ordinary income, if specific conditions are met.
- You were actively involved in the activity (renting a room in your house, most likely you were.)
- You have the taxable "other" ordinary income to deduct it from.
- Your MAGI does not exceed specified thresholds, determined by your filing status. For details (to see if the program is applying things correctly) see IRS Pub 925 page 4 starting at the bottom of the first column, "Special $25,000 Allowance". Then check that you don't exceed the MAGI threshold as applies to your filing status on that same page, 3rd column, "Phaseout rule".
