Passive Losses Can Only Be Deducted From Passive Income

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I purchased a rental propery last year . I was told that my losses from rental property can only be deducted if I have income from passive activities. As a employee of a computer company, is my salary a passive income?

Comments(3)

  • jjetts424th February, 2004

    no...not at all...a passive income is an income you dont have to get up out of bed at all and still get paid for that day.

  • pinghu24th February, 2004

    So I can't deduct any rental loss from my ordinart income right?

  • DaveT25th February, 2004

    The general rule is that passive losses offfset passive income.

    However, if you actively particpate in your rental activity, a special relief provision in the tax codes allows you to use passive losses to offset up to $25K in other income (salary, wages, dividends, interest). This passive loss allowance is phased out for incomes over $100K and disappears completely at $150K in other income.

    Passive losses that can not be taken in a tax year are suspended and carried forward to the next tax year. If your suspended losses have not been completely utilitized when you sell your rental property, than all of your suspended losses for that property are allowed in full, even against active income.

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