In the current year, Kenny has a $35,000 loss from a real estate rental activity.Kenny provides 1,000 hours of service to that activity, which is more than half of his working hours for the year.Kenny can deduct the $35,000 loss.

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According to the IRS, if a taxpayer "actively participates" in a rental real estate activity in which he or she owns at least 10% of the property, and if the taxpayer's "adjusted gross income" is less than $150,000, then the taxpayer can deduct up to $25,000 in losses from that activity. However, the taxpayer must provide "significant services" to the activity, and the taxpayer's participation in the activity must be "regular, continuous, and substantial." Kenny providing 1,000 hours of service to the rental activity satisfies this requirement, and since the loss is $35,000 (less than $25,000), he can deduct the entire loss.

In the Current Year, Kenny Has a $35,000 Loss from a Real