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Article Date:
October 2010

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Tax Tips for Rental, Non-Rental, and Business Losses

Two scary words in tax reform are “fairness” and “simplification.”


In most cases, this combination raises your taxes and makes the law more complex.


The Tax Reform Act of 1986 gets high marks for its political shrewdness, but tax professionals agree that this reform is both unfair and excessively complex (consider that it created the passive-loss rules and revised the alternative minimum tax to great inequities, including taxing the deduction you claim for state income taxes).


This article takes the complexity out of a portion of those passive-loss rules and helps you put this information to your use for your benefit.


Big Picture


In general, rental properties are passive activities subject to the dreaded passive-loss rules.1


You may not deduct a passive activity rental loss unless one of the following applies:



You have passivity activity income. (The law allows passive loss deductions to the extent of passive income.2)


You actively participate in the rental real estate and qualify for the $25,000 special allowance as explained in the article titled “Qualifying for Rental Real Estate’s Tax-Favored $25,000 Allowance.”


You dispose of your entire interest in the passive activity to an unrelated third party, which allows the release of ... Log in to view full article.

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