Net rental real estate losses are generally passive losses are disallowed (suspended) until such time as there is offsetting passive income.
There is a special rental real estate loss allowance of $25,000 which can be used to offset all other income, but there are income limitations (i.e., the allowance is phased out completely above a certain level of income).
The suspended losses are carried forward to subsequent tax years; you do not lose them. TurboTax will carry the suspended losses to subsequent tax years for your automatically.
@MIRIAM GUEVARA wrote:
can i claim rental property if I file married filing separetley
If you or your spouse actively participated in a passive rental real estate activity, you may be able to deduct up to $25,000 of loss from the activity from your nonpassive income. This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities.
Maximum special allowance. The maximum special allowance is:
• $25,000 for single individuals and married individuals filing a joint return for the tax year,
• $12,500 for married individuals who file separate returns for the tax year and lived apart from their spouses at all times during the tax year, and
• $25,000 for a qualifying estate reduced by the special allowance for which the surviving spouse qualified.
If your modified adjusted gross income (MAGI) is $100,000 or less ($50,000 or less if married filing separately), you can deduct your loss up to the amount specified above. If your MAGI is more than $100,000 (more than $50,000 if married filing separately), your special allowance is limited to 50% of the difference between $150,000 ($75,000 if married filing separately) and your MAGI.
Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance.
IRS Publication 527, Residential Rental Property - https://www.irs.gov/pub/irs-pdf/p527.pdf
When a married couple files separate, they both *automatically* disqualify for deductions they would otherwise get if they filed a joint return.
If the property is jointly owned (and that's clearly identified on prior year tax returns) then you both have to file SCH E each claiming 50% of all income/expenses. The $25K allowance from rental losses to other income is cut in half for each of you, and the thresholds to qualify for that is also cut in half. So more than likely it won't help. With the automatic disqualification for other deductions by filing separate returns, it will probably hurt more to file separate returns.
Understand that your carry over losses are not lost forever. If in a future year you qualify to deduct up to $25K from other income, then you can. Otherwise, carry forward losses are not realized until the tax year you sell or otherwise dispose of the property.
Typically, the TurboTax program will take care of the "up to $25K deducted from other ordinary income" for you automatically, *if* *you* *qualify*. If you indicated that you do "NOT" actively participate in the rental activity, then you do not qualify. Be aware there is a difference between active participation, and material participation.
Active participation.Active participation isn’t the same as material participation (defined later). Active participation is a less stringent standard than material participation. For example, you may be treated as actively participating if you make management decisions in a significant and bonafide sense. Management decisions that count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions.
So if you are not an active participant, the $25K deduction from other income may not be allowed regardless of your filing status.