Tax Tip Spotify Podcast and/or WordPress Blog Post and Rental Real Estate Losses

Tax Tips provided by Don Fitch, CPA

Rental losses are subject to special passive activity rules with respect whether they are deductible and the extent to which they may be deducted.

Passive activity losses are generally deductible only against passive activity income. There are two types of passive activities. The first type is rental activities. The second type is any trade or business in which you do not materially participate. These passive loss limitation rules apply to individuals, including individuals in a partnership or S corporation.

There is a special exemption for rental real estate, the so-called $25,000 special allowance, if you meet certain criteria. If your modified adjusted gross income is less than $100,000, you may deduct up to $25,000 in rental real estate losses, if you actively participate. Active participation requires being involved in meaningful management decisions. It also requires an ownership interest of more than 10 percent.

In addition, rental real estate losses of a Real Estate Professional

Brenda Fitch Real Estate Professional
Brenda Fitch Real Estate Professional – Indian Wells, CA

are completely exempted from the passive loss limitation rules where that professional materially participates in the rental activity. Material participation means working on a regular, continuous and substantial basis in the operations of a business. You are considered to be materially participating if, and only if, you meet one of seven hourly tests. If you meet any one of the seven tests, you are considered as materially participating regardless of your ownership interest. If you do not meet any of the tests, you cannot materially participate and losses are not deductible against nonpassive income.

DON FITCH, CPA
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This blog post is intended to serve solely as an aid in continuing tax education for Don Fitch Accountancy blog and email members. Due to the constantly changing nature of the subject of the materials, this product is not appropriate to serve as the sole resource for any federal tax, accounting opinion, tax return position, and must be supplemented for such purposes with other current authoritative materials. The information in this blog post has been carefully compiled from sources believed to be reliable, but its accuracy is not guaranteed. In addition, Don Fitch Accountancy is not engaged in rendering legal or other professional services and will not be held liable for any actions or suits based on this blog post, email, or comments made during the above presentation. If legal advice or other expert assistance is required, seek the services of a competent professional.

Published by Don Fitch, CPA

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