Rental Real Estate Loss Allowance

DEFINITION of 'Rental Real Estate Loss Allowance'

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.

BREAKING DOWN 'Rental Real Estate Loss Allowance'

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.

RELATED TERMS
  1. IRS Publication 527 - Residential ...

    A document published by the Internal Revenue Service (IRS) that ...
  2. Tax Deduction

    A deduction from gross income that arises due to various types ...
  3. Investment Real Estate

    Real estate that generates income or is otherwise intended for ...
  4. Passive Activity

    Activity in which the taxpayer did not materially participate ...
  5. Above The Line Deduction

    Above the line deductions are certain types of deductions that ...
  6. Property Tax Deduction

    State and local property taxes that are generally deductible ...
Related Articles
  1. Personal Finance

    How to Reduce Real Estate Investment Taxes

    Real estate tax law is not the same for rental properties as it is for residences. These tips can help you pay less in taxes.
  2. Investing

    Tax Deductions For Rental Property Owners

    The IRS defines a real estate professional as someone who works more than half of her time in the business, and more than 750 hours per year working on her properties.
  3. Managing Wealth

    The Pros And Cons Of Owning Rental Property

    Owning rental property can be a rewarding and profitable experience, but it comes with some real risks.
  4. Personal Finance

    Is It Worth Buying A Second Home To Rent?

    Mortgage interest rates are low, but consider these dos and don'ts before making the leap into rental property ownership.
  5. Personal Finance

    Getting U.S. Tax Deductions On Foreign Real Estate

    If your home or second home is not in the United States, you can still get U.S. tax deductions. How many and what kind depends on whether you also rent it.
  6. Personal Finance

    Tax Deductions For Rental Property Owners

    Besides creating ongoing income and capital appreciation, real estate provides deductions that can reduce the income tax on your profits.
  7. Personal Finance

    4 Ways To Value A Real Estate Rental Property

    Learn to evaluate real estate and get into the investment game.
  8. Personal Finance

    How To Prevent A Tax Hit When Selling A Rental Property

    Rental property ownership has its benefits but when selling you can face a big tax hit. Thankfully there are ways to reduce your capital gains exposure.
  9. Personal Finance

    Rent Revenue: A Growing Income Source for U.S. Households

    Never before has rental revenue represented such a large share of income gained by American households.
  10. Personal Finance

    Tax Breaks For Second-Home Owners

    The tax rules on a second home vary, depending on how the property is used.
RELATED FAQS
  1. What do real estate investors look for in a property?

    Profit from real estate investments by either flipping homes or becoming a landlord. Learn best practices for a successful ... Read Answer >>
  2. Are estate planning fees tax deductible?

    The costs of estate planning can be significant. Are any of these expenses deductible to the taxpayer or are they merely ... Read Answer >>
  3. Can I take a loss on real estate owned and sold as “other investment”?

    I owned a house which we used as our primary place of residence from 2006 - 2009.  Read Answer >>
  4. Can real estate be depreciated?

    Decrease the amount of taxable income on your income-producing real estate by depreciating the asset on your federal income ... Read Answer >>
  5. An appraiser forms the following estimates for a rental property ...

    Free info on financial certification exams including study guides, exam questions, and much more! Read Answer >>
  6. How do I know whether to itemize deductions or take the standard deduction?

    Taking the standard deduction is the easiest and most common method chosen by filers, but many taxpayers may wind up paying ... Read Answer >>
Trading Center