Taxes For Landlords: Rental loss limitations

Frequently, when renting real estate, the result is a net loss. But can you use this loss to offset other income? This tells you the circumstances where you can and when you can't. Besides providing a basic overview of passive activity loss limitation, this video describes the $25,000 "special allowance" for rental losses, and defines what a "real estate professional" is with regard to renting properties.
Additional Information and Resources:
IRS Publication 925: "Passive Activity and At Risk Rules:" www.irs.gov/pub/irs-pdf/p925.pdf
IRS Publication 527: "Residential Rental Property": www.irs.gov/pub/irs-pdf/p527.pdf
IRS Schedule E: "Supplemental Income and Loss": www.irs.gov/pub/irs.pdf/f1040...
IRS Form 8582: "Passive Activity Loss Limitations": www.irs.gov/pub/irs.pdf/f8582...
IRS From 8995: "Qualified Business Income Deduction (Simplified)": www.irs.gov/pub/irs.pdf/f8995...
nolo.com: "Can You Deduct Your Rental Losses?": www.nolo.com/legal-encycloped...
The Tax Geek on Twitter: @taxgeekusa
The Tax Geek on Reddit: www.reddit.com/r/askataxgeek
Image Credits:
Wikimedia Commons. (CC-SA 4.0)
NatGeoLover
Rossograph
Stilfehler
Pexels.com
The images of "Alice and "Darryl" were generated by thispersondoesnotexist.com and any resemblance between their likenesses and any person, living or dead, is incidental and not intended.
Intro Music: "Bluesy Vibes" - Doug Maxwell - UA-cam Audio Library
Outro Music: "Modern Attempt" - Track Tribe via UA-cam Audio Library
DISCLAIMER: This video is for educational and informational purposes only. It is not intended to render tax advice or investment advice for individual situations. If you have questions regarding your particular situation, please consult with a qualified tax or investment professional.
The information in this video is current as of date of publication, and is subject to changes.

[@tax-modern]

There are some other exceptions to the passive loss rules that this video didn't mention. The biggest one is that you can also use the tax loss to offset non-passive income if the rental is a short-term rental with an average that of 7 days or less, and also you meet the qualifications for material participation. That is a major tax advantage of short-term rentals that the vast majority of tax professionals are still unaware of unfortunately.

[@lHurtYourFeeIings]

Agree. I was about to mention this... I can't believe they didn't mention short term rentals.

[@mike2959]

100% correct.

[@angelicassalas6264]

I like the way you present the content. So helpful. Thank you for sharing this information.

[@TheTaxGeek]

I'm glad you found the content helpful.

[@redryder210]

Gold!! Thank you for posting this

[@TheTaxGeek]

You're welcome!

[@juliovelazquez7571]

Great Video! THANK YOU!

[@TheTaxGeek]

You're very welcome!

[@sophieshao4432]

very useful

[@ellenoir5678]

Thanks for the video Sir!!

[@TheTaxGeek]

Your very welcome, as always!

[@MrCarlsonWang]

What are the best ways to generate additional passive income (other than buying more rental properties) to offset these passive rental losses?

[@TheTaxGeek]

Unfortunately, I don't have the expertise or qualifications to advise you in this area. There are dozens of other UA-cam channels devoted to this very subject.

[@jonmoore907]

What happens if you sell rental property where you end up with a loss for the year (and there are carried through losses from prior years)? Can it be used to offset other income or factored into calculating the capital gains on the sale?

[@TheTaxGeek]

Yes. Whenever you dispose of a passive activity with accumulated losses, you get to take all the losses and use them to offset other income. It reduces your taxable income, but it is not directly offset against the capital gains.

[@jonmoore907]

I see thank you.

[@muxi0121]

The income limits are crushing 😔

[@santiagohoyos6565]

Would renting a portion of your home be considered active?

[@TheTaxGeek]

No, it's considered to be passive with active participation. Losses can only be used to offset other passive income, but you would be use up to $25,000 in losses to offset other income, as shown in the video.

[@jeffreyd508]

Hi, as a U.S. citizen, if I bought a new construction condo in 2019 in Ukraine, and builder/project went BK, and recently, the city of Kyiv repossesed the land they were building on, claiming it was gotten fraudently in 2006 involving a bribe. Dead project
Not sure how to write off this loss. Can't find any info. Do you know, or if not, where I can find such info? Thanks

[@TheTaxGeek]

This is known as "involuntary conversion." This is the same as essentially selling the property for $0. How it's handled depends on the use of the property. If the property was rented out, you might be able to write the entire loss against other income. If the property was held for investment, it would be an ordinary capital loss and your write-off would be limited to $3,000. Complicating this matter is the property being in a foreign country, which may be subject to differing IRS rules. My best advice is to engage an Enrolled Agent, CPA, or attorney who can make sure this is done properly.

[@jeffreyd508]

@@TheTaxGeek Thx for the detailed response. I will do so
I assume it would be long term cap loss, and I can write it off against long term cap crypto gains?

[@Team8LA]

Where do we track rental loss carrry forward?

[@TheTaxGeek]

Carryforward passive losses are reported and tracked on Form 8582. A video is coming on this form.