Whay can't I deduct rental loss

[mikecainnc]

Turbo tax calculates our rental unit lost $10k.  This is accurate. However, I can't deduct the loss.  Why

[LindaA · Accepted solution]

In general, the passive activity rules limit your ability to offset other types of income with net passive losses. However, if you actively participate in a rental real estate activity, you can deduct up to $25,000 of your rental loss, even though it is a passive activity. During the tax interview, TurboTax will ask ask if you qualify as an active participant. You might want to revisit the rental section of TurboTax and make sure you indicated you were an active participant (click the attachment below to enlarge it for reference). Note that as your income increases, this exception to the passive activity rules phases out. The exception decreases as your modified adjusted gross income (MAGI) goes above $100,000 and is completely phased when your MAGI exceeds $150,000. For more information, please see Real Estate Tax and Rental Property.

[Carl]

Thats because passive losses can only be deducted from passive income. Once those passive losses get your taxable passive income to zero, that's it. You can't deduct any more. The excess is carried over to next year where it will be deducted *IF* you have the passive income to deduct it from. That would be rare.

in fact, it's more common for your passive losses on rental property to increase with each passing year. You can't actually "realize" those losses until the year you sell or otherwise dispose of the property. You'll see those carry over losses on IRS Form 8582 line 1d.

[taxjedi1]

I'm having the same issue, my rental property unit resulted in 13k loss and I specified that I'm an active participant. My Schedule E (Form 1040) on the resulted return reports the 13k loss on line 21 (Subtract 20 from 3 and 4), but it is still empty on line 22 (Deductible rental real estate loss after limitation, if any, on Form 8582) and the deduction is not applied to "total rental real estate and royalty income or loss" field. My line 25 (Losses) is also empty as a result.

[GeorgeM777]

It appears you have limitations based on your income.  What is your modified adjusted gross income?  If it is $150,000 or more, there is no special allowance for loss deduction for those with active participation.  On Form 8582, do you have amounts on lines 7, 8, or 9?  If so, what are they?

@taxjedi1

[taxjedi1]

@GeorgeM777 my AGI is more than $150k

My amounts on Form 8582:

• line 7: $3,380 (cleaning and HOA fees)
• line 8: empty
• line 9: $293

Does this loss somehow roll to the next year? Because I just started renting at the end of the year (Nov) and made all the repairs before that in order to rent. I'm expecting my next year to give me rent income higher than losses but if I cannot write of my repairs and other losses which I got this year, this would be lots of work for nothing.

[GeorgeM777]

Yes, your passive losses will carryover year after year.  The benefit of having active participation within the income thresholds was to allow passive losses to offset ordinary income.  However, given your income, you don't have the option of offsetting ordinary income with your passive losses.  But, because they do carryover, if you have passive income in 2022, then those prior year passive losses will offset that 2022 passive income. 

@taxjedi1