Passive Rental Loss carryover question

[burgerguy14]

I am a retired landlord (active by IRS definition) with 2 rentals.

I have interest and dividend income and a rental loss.  My itemized deductions (home mortgage interest & property taxes) would reduce my taxable income below zero. 

Why does Form 1040 deduct my rental loss from my income first and then apply my itemized deduction?  

The rental loss sort of becomes useless (in tax  terms).  Is there a way to carry it forward instead?

[Anonymous_ · Accepted solution]

Basically, that is the way the form (1040) is designed and AGI is calculated. You can't really change it.

[burgerguy14]

I was hoping the rental loss could get treated like the long term capital loss carryover (-3000).  If the LT Capital loss carryover doesn't reduce my taxable income it gets added back to my carryover to next year.

Is there a way to retain the rental loss for a future year as opposed to taking it? 

[Anonymous_]

Rental losses (on residential rental real estate), as passive losses, are carried forward but there is a special allowance for active participation where an owner can deduct up to $25,000 against nonpassive income depending upon the taxpayer's MAGI (modified adjusted gross income).

See https://www.irs.gov/publications/p527#en_US_2022_publink1000219124