Losses from investment real estate or rental property are passive by definition — unless you’re a real estate professional. Then you can deduct real estate activity losses in full. To qualify as a real estate professional, you must annually perform:
- More than 50% of your personal services in real property trades or businesses in which you materially participate, and
- More than 750 hours of service in these businesses during the year.
Each year stands on its own, and there are other nuances to be aware of. If you’re concerned you’ll fail either test and be stuck with passive activity losses, consider increasing your hours so you’ll meet the test. Keep in mind that special rules for spouses may help you meet the 750-hour test.
Source: Sol Schwartz & Associates, P.C.