In most cases, rental losses are considered passive activity losses. You can only deduct passive activity losses from passive activity income. This results in a limit on loss deductions. You can carry any excess loss forward to the following year or years until it is used, or the year you dispose of your entire interest in the activity in a fully taxable transaction. View Form 8582 in View Results. The amount of any unallowed loss will carried forward to future years until it can be used.
If the taxpayer or their spouse actively participated in a passive rental real estate activity, or is a rental real estate professional, a deduction of up to $25,000 ($12,500 for married filing separate filers) is allowed.
The maximum special allowance of $25,000 ($12,500 for married filing separate filers) is reduced by 50% of the amount of modified adjusted gross income that is more than $100,000 ($50,000 for married filing separate filing status). If modified adjusted gross income is $150,000 or more ($75,000 or more for married filing separate filing status), the deduction is completely phased out.