When you talk about income and losses from rental property and what is deductible, do you calculate the rental property income only, or all of your income sources?

[Vanessa A · Accepted solution]

If you have a rental property, then the expenses that are directly related to that property are what you are looking at.  The property is a separate source from you when determining the income and expenses for the rental property. 

Once the income or losses from that property are calculated on Schedule E, that number will flow to your form 1040 where passive activity rules will be applied based on your overall total income.  If you "actively participate" in the rental property you can deduct up to $25,000 against non-passive income if your Modified Adjusted Gross Income is $150,000 or less.  At $100,000 you can deduct the full amount, but that amount phases out gradually until you hit $150,000.