Can someone refer me to the specific IRS publication which states that one is REQUIRED to take the "special allowance" (up to $25K) for rental losses?

[Lisa995]

@TaxGuyBill   can you jump in here?

[Zbucklyo]

I think the OP is referring to it as the special allowance because that is the way the IRS refers to it - it is an exception to the general rule that passive losses can ordinarily be only used to offset passive income (there is a special allowance for rental real estate losses).  

[specialallowance]

Bill:  Thank you.  Here's a link, regarding what I'm referring to:  <a rel="nofollow" target="_blank" href="https://www.bankrate.com/finance/taxes/defer-passive-activity-loss.aspx">https://www.bankrate.com/fi...>

[Zbucklyo]

I don't see anything in the Instructions for Form 8582 that require you to take the special allowance.  You can just indicate that you are not an active participant in the rental activity and it will be disallowed.

[specialallowance]

Thanks, Zbucklyo.  I thought about that, but this would be different than what was claimed in other years.  (Plus, the expenses that would accrue and would still be listed on Schedule E would probably imply active participation.)

[Zbucklyo]

I wouldn't worry about the expensing.  I co-own a rental property in which I am not an active participant (everything handled through rental agent), but there is still mortgage interest, utilities, insurance, property taxes, repairs, etc. to deduct.  To play devil's advocate, one could argue that if one is an active participant, the special allowance is required to be taken, but the instructions say you "may be eligible".

[specialallowance]

Thanks, Zbucklyo.  It does seem like a rather grey area.  I guess I'll need to decide if I should change it, at this point.