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Passive Real Estate Losses

Certain passive losses can offset ordinary income.

Commonly referred to as Passive Activity Losses

Do I Qualify for the Passive Real Estate Losses?

Taxpayers with passive income from rental real estate assets and whose total income is below IRS adjusted gross income limitations.

2022 Passive Real Estate Losses Details

Passive real estate losses (from investments) can help offset passive and nonpassive income for taxpayers with less than $150,000 taxable income (MFJ) or $75,000 (MFS). If you or your spouse actively participated in a passive rental real estate activity, the amount of the passive activity loss that’s disallowed is decreased and you therefore can deduct up to $25,000 of loss from the activity from your nonpassive income.

The maximum special allowance is:

• $25,000 for single individuals and married individuals filing a joint return for the tax year.

• $12,500 for married individuals who file separate returns for the tax year and lived apart from their spouses at all times during the tax year.

• $25,000 for a qualifying estate reduced by the special allowance for which the surviving spouse qualified.

Passive Real Estate Losses

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Allows you to use passive real estate losses against active income


All passive income must be offset by prior suspended losses and current year losses before reducing ordinary income

Assumptions When Taking the Passive Real Estate Losses

Actively participated in the activity

Not a real estate professional

Property is not treated as a vacation rental property.

You are not married filing separate and lived with your spouse at any time during the year.

Requirements to Claim the Passive Real Estate Losses

Owns rental passive rental real estate

Business Entities That Can Claim the Passive Real Estate Losses

Schedule E
Farm Rental

The material discussed on this page is meant for general illustration and/or informational purposes only and is not to be construed as investment, tax, or legal advice. You must exercise your own independent professional judgment, recognizing that advice should not be based on unreasonable factual or legal assumptions or unreasonably rely upon representations of the client or others. Further, any advice you provide in connection with tax return preparation must comply in full with the requirements of IRS Circular 230.

Prosperity Tax Advisors
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