What Are Passive Activities and How Do They Affect Me?
Property rental is by definition, passive activity and is hence subject to passive activity loss rules. While these rules are quite complex, in essence, the passive activity rules limit your ability to offset other types of income with net passive losses. On the positive side there are exceptions: If you actively participate in a rental activity you can deduct up to $25,000 of the rental loss. This means you must own at least 10% of the property and make major management decisions–such as approving new tenants, setting rental terms, approving improvements, etc. You don’t have to mow the lawn or perform such tasks to qualify as an ‘active’ participant. However, as your income rises this exception phases out. If you have modified adjusted gross income over $100,000 the loss you can deduct decreases by $0.50 for every dollar over $100,000. And once your modified adjusted gross income touches $150,000, the maximum loss is completely phased out. (Modified adjusted gross income is your adju
Rental properties are, by definition, passive activities and are subject to passive activity loss rules. These rules are quite complex. In general, the passive activity rules limit your ability to offset other types of income with net passive losses. But the good news is there is an exception: If you actively participate in a rental activity you can deduct up to $25,000 of the rental loss. To actively participate means that you own at least 10% of the property and you make major management decisions, such as approving new tenants, setting rental terms, approving improvements, and so forth. (No, you don’t have to mow the lawn or answer middle-of-the-night phone calls from tenants about a backed-up toilet.) But this exception phases out as your income rises. If you have modified adjusted gross income over $100,000, the loss you can deduct decreases by $0.50 for every dollar over $100,000.
Rental properties are, by definition, passive activities and are subject to passive activity loss rules. These rules are quite complex. In general, the passive activity rules limit your ability to offset other types of income with net passive losses. But the good news is there is an exception: If you actively participate in a rental activity you can deduct up to $25,000 of the rental loss. To actively participate means that you own at least 10% of the property and you make major management decisions, such as approving new tenants, setting rental terms, approving improvements, and so forth. (No, you don”t have to mow the lawn or answer middle-of- the-night phone calls from tenants about a backed-up toilet.) But this exception phases out as your income rises. If you have modified adjusted gross income over $100,000, the loss you can deduct decreases by $0.50 for every dollar over $100,000. The maximum loss is completely phased out when your modified adjusted gross income reaches $150,00
Rental properties are, by definition, passive activities and are subject to passive activity loss rules. These rules are quite complex. In general, the passive activity rules limit your ability to offset other types of income with net passive losses. But the good news is there is an exception: If you actively participate in a rental activity, you can deduct up to $25,000 of the rental loss. To actively participate means that you own at least 10% of the property, and you make major management decisions, such as approving new tenants, setting rental terms, approving improvements and so forth. (No, you don’t have to mow the lawn or answer middle-of-the-night phone calls from tenants about a backed-up toilet.) But this exception phases out as your income rises. If you have modified Adjusted Gross Income over $100,000, the loss you can deduct decreases by $0.50 for every dollar over $100,000. The maximum loss is completely phased out when your modified adjusted gross income reaches $150,000
Rental properties are, by definition, passive activities and are subject to passive activity loss rules. These rules are quite complex. In general, the passive activity rules limit your ability to offset other types of income with net passive losses. In other words, if you have losses from a passive activity, such as a rental property you own, you can’t always take those losses on your tax return in the current year to reduce income from non-passive activities such as wages, salary, interest, dividends, or gains from sales of stocks. Passive losses can offset income from other passive activities. If you have a net passive loss in any year, that loss is generally suspended (delayed to a later year) until either you have passive income or you completely dispose of the passive activity. But if you actively participate in a rental activity you can deduct up to $25,000 of the rental loss. To actively participate means that you own at least 10 percent of the property and you make management
