What Is The Passive Loss Exception?
It may be possible to write off up to $25,000 in passive real estate losses from your general income under certain conditions.
The ability to write-off passive real estate losses is limited. Generally, if your adjusted gross income is more than $100,000 per year, you typically lose the ability to write off $1 in passive losses for every $2 in regular income above $100,000. In effect, your ability to claim current write-offs declines to zero once you earn $150,000. Married individuals filing separately can write-off up to $12,500 per year.
Passive write-offs which cannot be deducted during the year in which they occur can be used in future years or added to the property basis if a property is sold.
The IRS provides this example:
Example. Kate, a single taxpayer, has $70,000 in wages, $15,000 income from a limited partnership, a $26,000 loss from rental real estate activities in which she actively participated, and less than $100,000 of modified adjusted gross income. She can use $15,000 of her $26,000 loss to offset her $15,000 passive income from the partnership. She actively participated in her rental real estate activities, so she can use the remaining $11,000 rental real estate loss to offset $11,000 of her nonpassive income (wages).
See: http://www.irs.gov/businesses/small/article/0,,id=146325,00.html
Information is available from IRS Publication 925. However, there are a bunch of qualifications to consider (active versus passive, low-income housing, marital status, etc.), so please see a tax pro for details and specific advice.
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