Limit on Rental Losses
Rental real estate activities for which you receive income mainly for the use of tangible
property rather than for services are considered passive activities. The amount of passive activity loss you can
deduct from nonpassive income is limited by at-risk rules and passive activity rules.
If you used your property as a home during the year, the passive activity rules do not apply to
that property. Instead, you must follow the rules explained earlier under Personal Use of A Vacation Home or
At Risk Rules
Losses from passive activities are first subject to the at-risk-rules. These limit the amount of
deductible losses from holding more real estate property placed in service after 1986. Losses from real property
placed in service before 1987 are not subject to the at-risk rules.
Generally, your loss cannot exceed the amount you have at risk at the end of the tax year (the
amount of your money or property you could actually lose). The amount you have at risk includes your cash
investment as well as loans for which you are personally liable. See Publication 925, Passive Activity and At-Risk
Rules for more information.
Even if you are fully at risk, your loss may be limited by the passive activity limits.
Passive Activity Limits
Because rental activities are passive activities, you generally cannot offset income, other than
passive income, with rental losses. Any excess loss is carried over to the next tax year. You may have to complete
Form 8582, Passive Activity Loss Limitations, to figure the amount of any passive activity loss for the current
year and any passive activity loss allowed on your tax return. For a detailed discussion of the passive activity
rules, see Publication 952.
Real Estate Professionals
Rental activities in which you materially participated during the year are not passive
activities if, for that year, you were a real estate professional.
How to qualify as a real estate professional?
To qualify as a real estate professional, the time you spend performing services in real
property trades or businesses in which you materially participate must be more than half
the time you spend performing personal services in all trades or businesses and more than 750 hours. Losses from these activities are not
limited by the passive activity rules.