I agree with @Anonymous_
In addition, I believe the CPA provided exactly why the OP wasn't getting the benefit of the rental losses.
- Rental real estate activities of "qualifying taxpayers" (i.e., real estate professionals) are not subject to the rule that treats all rental activities as per se passive. Thus, a real estate professional who materially participates in rental activities may treat losses from those activities as nonpassive.
- We have already determined that you do not currently qualify as a real estate professional. As such, you are now subject to the normal passive activity rules.
- However, if a taxpayer does not meet the eligibility requirements for this exclusion (real estate professional) they may, nonetheless, deduct up to $25,000 of passive losses if they meet the "actively participate" provision. But, there is a phase-out of those losses as explained by the CPA. So if you are within this adjusted gross income range, then you will lose some of the allowance and will be completely phased-out over $150,000.
- I also agree with the CPA in that in order to minimize your tax liability, you need to keep track and document your real estate business expenses. Keep in mind, that if you are deducting "lunch or dinner" there must be a primary correlation to your real estate business. You will need to document the individuals at the dinner or lunch, place and the reason for the lunch or dinner (business purpose).
- Based on all the other replies, I think you now understand how all this works.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
