By law real estate rental is a passive activity. Passive losses are only deducible to the extent that they offset passive income. Additionally, passive rental income can be subject to the new 3.8% tax on net investment income. There is a special provision that allows individuals to deduct up to $25,000 of rental losses. However, this provision is phased out between $100,000 and $150,000 of adjusted gross income. A real estate professional’s rental income is non-passive, meaning losses can offset any type of income, not just passive income.
To qualify as a real estate professional:
- More than half of the personal services that you perform during the year must be in real estate trades or businesses.
- You must spend more than 750 hours in your real estate trades or businesses.
This is just a brief overview and does not cover all of the intricacies involved in qualifying as a real estate professional. Please contact our office to set up an appointment to explore what is right for your situation.
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Phone Number: 302-239-3500