Be careful not to confuse the rules regarding a real estate professional (outlined by @SweetieJean) and the Exception for Certain Rental Real Estate Activities passive loss rules. If you meet the latter criteria, you can deduct up to $25,000 in losses each year. Essentially, you must actively participate in your rental activities, have an AGI under $100K ($50K if MFS), and some other conditions as described in Schedule E instructions, page E-3,4.
- To qualify as a real estate professional, the taxpayer must spend:
- more than 50 percent of his/her time in real estate activities; AND,
- more than 750 hours in real estate activities.
- A real estate professional must materially participate in each rental activity for the loss to be deductible