Rental Real Estate Loss Allowance

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DEFINITION

A federal tax deduction of up to $25,000 that is available to non-real estate professionals who own at least a 10% interest in a rental property that they actively manage and that operates at a loss during a particular tax year. Under the tax code, losses from passive activities such as rental real estate ownership normally cannot be deducted from income; the rental real estate loss allowance provides an exception to that rule.

INVESTOPEDIA EXPLAINS

To meet the active participation test, the taxpayer must make management decisions for the property. It is possible to meet this test even if the rental property is run by a management company.
As of 2009, the full deduction is available to single taxpayers with an adjusted gross income of $100,000; between $100,000 and $150,000 the deduction gradually phases out, and taxpayers with adjusted gross incomes above $150,000 may not take the deduction at all.




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