IRS Form 8582 (Passive Activity Loss) - Special Allowance for Rental Real Estate Losses

Rental real estate activities are "per se" passive activities. If a taxpayer actively participates in the rental real estate activity, and the activity operates at a net taxable loss for the period, the taxpayer may be able to claim the Special Allowance for Rental Real Estate activities and deduct up to $25,000 of those passive losses against nonpassive income.

In this example, we have a taxpayer with a single-family home rental property where he actively participates in the management. The taxpayer is eligible to claim the special allowance and deduct the losses against his nonpassive income. To claim the allowance, the taxpayer's modified AGI must be below $150,000. Otherwise, the allowance is completely phased out.

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