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Passive-activity loss limits
Passive-activity losses are deductible up to the amount of your passive-activity income. They include losses from trade or business activities you don't materially participate in.
Rental activities are always considered passive. This is true unless you materially participate as a real estate professional. An activity is a rental activity if the income generated:
You might have passive-activity losses from rental real-estate activities you actively participate in. If so, you're allowed a special allowance based on your filing status:
You actively participate in rental real-estate activities if both of these are true:
You can deduct the lower of these from your nonpassive income:
Losses are offset against passive income before figuring the amount allowed under this provision.
If you and your spouse file separate returns and you lived apart for the entire year, the limit is $12,500. This begins to phase out when your modified AGI is more than $50,000. If your modified AGI is $75,000 or more, you can’t claim losses. If you lived together at any time during the year, you also can’t claim losses.
To learn more, see the Rentals and Royalties tax tip.