In general, the passive activity rules limit your ability to offset other types of income with net passive losses. However, if you actively participate in a rental real estate activity, you can deduct up to $25,000 of your rental loss, even though it is a passive activity. During the tax interview, TurboTax will ask ask if you qualify as an active participant. You might want to revisit the rental section of TurboTax and make sure you indicated you were an active participant (click the attachment below to enlarge it for reference). Note that as your income increases, this exception to the passive activity rules phases out. The exception decreases as your modified adjusted gross income (MAGI) goes above $100,000 and is completely phased when your MAGI exceeds $150,000. For more information, please see Real
Estate Tax and Rental Property.
