What is a passive activity?

A trade, business, or rental activity in which you do not materially participate. Material participation requires meeting one of 7 IRS tests including 500 hours per year.

How does the $25,000 rental loss allowance work?

Active rental real estate participants can deduct up to $25,000 in rental losses against ordinary income. This allowance phases out from $100,000 to $150,000 AGI and is fully eliminated above $150,000.

What happens to suspended passive losses?

Passive losses in excess of passive income are suspended and carry forward indefinitely. Suspended losses are released when the activity is disposed of in a fully taxable transaction.

Who qualifies as a real estate professional?

Must spend more than 750 hours per year in real estate trades/businesses where you materially participate, AND more hours in real estate than any other profession. Rental losses are then non-passive.

Are K-1 losses from LPs always passive?

Limited partners are generally passive by definition. General partners must apply the material participation tests. S-corp shareholders apply material participation tests to each activity.

US Passive Activity Loss (PAL) Rules Calculator

Calculate passive activity loss (PAL) limitations. Passive losses only offset passive income. $25,000 rental real estate allowance phases out $50,000-$100,000 AGI. Real estate professional exception.

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Annual Rate (%)

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$ Finance Disclaimer: These calculators are for educational and illustrative purposes only. Results do not constitute financial advice. Consult a licensed financial advisor before making investment or borrowing decisions.

How to Use

Enter the values for the scenario you are assessing. Calculate passive activity loss (PAL) limitations. Passive losses only offset passive income. $25,000 rental real estate allowance phases out $50,000-$100,000 AGI. Real estate professional exception. Use the passive activity loss rules result to inform your calculation.

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Frequently Asked Questions

What is a passive activity?

How does the $25,000 rental loss allowance work?

What happens to suspended passive losses?

Who qualifies as a real estate professional?

Are K-1 losses from LPs always passive?