| Many taxpayers own rental real estate and incur a “passive loss” even though the rental income is sufficient to cover the cash required to pay interest on a mortgage, real estate taxes, and maintenance and upkeep costs. |
| How can there be a “passive loss” when there is a cash breakeven? |
| The answer often is that tax basis depreciation on the property, a non-cash expense, is deductible for tax purposes. |
| However, except on a limited basis established by the taxpayer’s adjusted gross income, a passive loss cannot be deducted unless the taxpayer has “passive income” in amounts sufficient to offset the “passive loss”. |
| By definition Income and losses from investment real estate or rental property are passive, unless you qualify as a “real estate professional”. |
| To be a real estate professional you must spend more than 50% of your services in real property trades or businesses in which you are a material participant, and more than 750 hours of services in these businesses during the tax year. |
| Passive losses on real estate property accumulate until such time as the property is sold; at that time the accumulated passive losses are deductible.
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