Bruce owns a small apartment building that produces a $25,000 loss during the year.His AGI before considering the rental loss is $85,000.Bruce must be a material participant with respect to the rental activity in order to deduct the
$25,000 loss under the real estate rental exception.

Question

Quizplus · Accepted Answer

The real estate professional exception allows for the deduction of rental real estate losses without the need for material participation, but rather requires that the taxpayer performs more than half of their personal services in real property businesses in which they are materially participating, and performs more than 750 hours of services during the tax year in these real property trades or businesses. Material participation is not a requirement for the deduction under the passive activity loss rules if the taxpayer qualifies as a real estate professional. However, for non-real estate professionals, passive activity loss rules generally limit the deduction of rental losses against other types of income, with an exception for active participants in rental real estate activities, allowing a deduction of up to $25,000 against non-passive income, which phases out starting at an AGI of $100,000 and is completely phased out at $150,000.

Bruce Owns a Small Apartment Building That Produces a $25,000