Deducting rental property losses against your wages, interest income, dividend income, and other types of income.

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Rental activities are consider passive activities by definition and rental activities are subject to the rule affecting passive activities and the limitations for losses coming from such activities. The taxpayer's level of participation in their rental activities involving real estate can have an impact on the treatment that any income and/or losses will receive on the tax return. The three levels of participation are Active, Material, and Real Estate Professional.

Active Participation

A taxpayer is considered to actively participated in a rental real estate activity if the taxpayer, and the taxpayer's spouse if filing joint, owned at least 10% of the rental property and you made management decisions in a significant and bona fide sense. Management decisions include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions.

Material Participation

A trade or business activity is not a passive activity if you materially participated in the activity. Material Participation is defined as the taxpayer being involved in the activity on a basis that is "regular, continuous, and substantial". The IRS has a series of test to indicate if you materially participated or not:


If a Taxpayer actively participates in a rental activity that has a loss, the Taxpayer may be able to deduct up to $25,000 of the loss against their Non Passive Income ($12,500 if Married Filing Separately).

When the Taxpayer’s modified adjusted gross income is $100,000 or less ($50,000 or less if Married Filing Separately), the loss is deductible up to a maximum special allowance of $25,000.

If the Taxpayer’s modified adjusted gross income is more than $100,000 ($50,000 if Married Filing Separately) but less than $150,000 ($75,000 if Married Filing Separately), the special allowance is limited to 50% of the difference between $150,000 ($75,000 if Married Filing Separately) and the Taxpayer’s modified adjusted gross income. This special allowance is calculated on Form 8582.

It is not available to any individuals whose filing status is Married Filing Separate unless the individuals lived apart for all of the year.

NOTE: This is a guide on Real Estate Real Estate Participation being Active or Material and entering it in the TaxSlayer Pro program. This is not intended as tax advice

⌚ Time Stamps so you can jump to any point in the video
►0:00 -1:03 Introduction of topic
►1:04 Why can't always deduct rental losses
►3:00 Active participation rules and why it's important to deduct your losses
►5:16 Seeing how loss deductions from rentals appear on the tax forms
►7:08 Form 8582 Passive Activity Loss Limitations

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