"If you have a loss from your rental real estate activity, two sets of rules may limit the amount of loss you can report on Schedule E. You must consider these rules in the order shown below. Both are discussed in this section.
- At-risk rules. These rules are applied first if there is investment in your rental real estate activity for which you aren’t at risk. This applies only if the real property was placed in service after 1986.
- Passive activity limits. Generally, rental real estate activities are considered passive activities and losses aren’t deductible unless you have income from other passive activities to offset them."
For additional information, please refer to IRS Pub. 527 Residential Rental
Property, p. 13.