I have expenses on rental but am not getting deduction, why am I not getting a deduction?

[Carl]

Rental activity reported on SCH E is passive activity. Passive losses can only be deducted from passive income. So once your rental expenses gets your taxable rental income to zero, that's it. You're done. Any remaining expenses/losses are carried forward to the next year.

It is not common for rental property to show a taxable gain on the tax return at tax filing time. Especially if there's a mortgage on the property. Once you deduct the allowed rental expenses of mortgage interest, property taxes, property insurance and the depreciation you are required to take by law, you will almost always show a loss.

So with each passing year you'll see your rental losses grow and just get carried over to the next year. You will not be able to "realize" those losses against other non-passive income until the tax year you sell or otherwise dispose of the property.

If you have any carry over losses you'll see them on the IRS Form 8582 that will not be generated until "AFTER" you have completed your tax return in it's entirety and you are ready to file.

[tagteam · Accepted solution]

There is a special $25,000 allowance for taxpayers who actively participated in a passive rental real estate activity.

See https://www.irs.gov/publications/p925#en_US_2019_publink1000104571

However, there is also a phaseout rule for the $25,000 allowance.

See https://www.irs.gov/publications/p925#en_US_2019_publink1000104575