Understanding Real Estate Passive Activity Losses

💡Passive losses from real estate can offset other income but have limitations based on different categories: passive, active, and real estate professional.

📝Keep good records of losses and receipts to carry forward for future use when selling rental properties.

🧑‍💼Elect active status to maximize the deduction of passive activity losses against active or earned income.

🏘️Passive activity losses can be used when selling any rental property, not just the one producing the loss.

🔍Consider qualifying as a real estate professional to offset passive losses with no limits on income deduction.

Can passive activity losses from real estate offset other income?

—Yes, passive activity losses from real estate can offset other income with certain limitations based on three categories: passive, active, and real estate professional.

What happens to losses that cannot be offset in the current year?

—Losses that cannot be offset in the current year can be carried forward and used when selling any rental property in the future.

Is it beneficial to elect active status for real estate investments?

—Electing active status allows for the deduction of passive activity losses against active or earned income, providing more flexibility in offsetting losses.

Can passive losses be used when selling any rental property?

—Yes, passive losses can be used when selling any rental property, not just the one that generated the loss.

What is a real estate professional status and how does it affect passive losses?

—A real estate professional status allows for the deduction of passive losses against all earned or active income without any limitations, providing the maximum benefit.

00:00Real estate passive activity losses are losses generated from rental properties that can offset other income.

01:12Passive activity losses fall into three categories: passive, active, and real estate professional, each with different limitations and benefits.

04:47Keep track of passive activity losses and their related receipts for future use when selling rental properties.

09:18Electing active status allows for the deduction of passive losses against active or earned income, providing more flexibility.

10:50Passive activity losses can be used when selling any rental property, not just the one that generated the loss.

11:46Real estate professional status allows for the deduction of passive losses against all active or earned income without any limits.