What Is the Rental Real Estate Loss Allowance?

The rental real estate loss allowance is a federal tax deduction available to taxpayers who own and rent property in the U.S. Up to $25,000 may be deducted as a real estate loss per year as long as the individual's 澳洲幸运5官方开奖结果体彩网:adjusted gross income (AGI) is $100,000 or less. The deduction phases out for individuals earning between $100,000 and $150,000. People with higher adjusted gross incomes are not eligible for the deduction.

The deduction is available only to non-real estate professionals who own at least a 10% interest in a rental property that they actively manage and that operates at a loss during a particular tax year.

Un📖derstanding the Rental Real Estate Loss 🌳Allowance

The rental real estate tax loss allowance is available only to property owners who actively participate in the management of the property. To meet the 澳洲幸运5官方开奖结果体彩网:active participation test, the taxpayer must make management decisions for the property. It is possible to meet 🐠the test even if the property is run by a management company. The taxpayer must be able to demonstrate that they have put in a minimum number of hours per year managing the property.

The tax code considers rental losses to be passive losses. In general, fewer taxpayers qualify for such deductions. By definition, they are not earned income. For example, money made through stock investments also is passive income.

Special Considerations

In 2017, the (TCJA) made sweeping changes to the American tax code. In this case, previous rules on passive income remained intact. An indiv♚idual may only deduct passive losses, such as rental losses, to the extent that they have passive income coming in from other sources, including other rental properties.

The act also created a for pass-through business entities such as 澳洲幸运5官方开奖结果体彩网:limited liability companies (LLC) or 澳洲幸运5官方开奖结果体彩网:sole proprietorships. Property owners who do business under such entities may qualify for a 20% deduction from their qualified business incomes.

The Bottom Line

To be eligible for the rental real estate loss allowance—an up to $25,000 federal tax deduction for those who rent property, and experience a real estate loss—you must meet income requirements. Your adjusted gross income (AGI) must be $100,000 or less. There is also a phase-out period between $100,000 and $150,000. If you make more than that, you're not able to use the deduction. There are other qualifications, too: you must be a non-real estate professional, you must own 10% or more of the rental property, and you must actively manage the property.