--- title: What are Passive Losses on Rental Property? description: If there is a loss realized on a rental property that generates passive income for the owner, it is considered a passive loss, or passive activity loss. image: https://www.realized1031.com/hubfs/Images/photo/abstract/for-rent-house-IS-149060607.jpg --- [![Realized 1031 Exchange Marketplace](https://www.realized1031.com/hs-fs/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black.png?width=240&height=80&name=Realized-Logo-Black.png "Realized 1031 Logo") ](https://www.realized1031.com/) - [Wealth Management Gap](https://www.realized1031.com/the-wealth-management-gap) - [Our Process](https://www.realized1031.com/how-realized-works) - [Financial Advisors](https://www.realized1031.com/advisor) - [Resources](https://www.realized1031.com/resources) - [The Company](https://www.realized1031.com/about-us) - [Articles](https://www.realized1031.com/blog) [Register](https://www.realized1031.com/marketplace) [Log In](https://www.realized1031.com/login) - Better Business Bureau Rating: **A+** - [FINRA BrokerCheck](https://brokercheck.finra.org/firm/summary/22333) - [Call](tel:1-877-797-1031) **(877) 797-1031** # What are Passive Losses on Rental Property? Posted Apr 30, 2024 ![for-rent-house-IS-149060607](https://www.realized1031.com/hs-fs/hubfs/Images/photo/abstract/for-rent-house-IS-149060607.jpg?width=750&height=392&name=for-rent-house-IS-149060607.jpg) If there is a loss realized on a rental property that generates passive income for the owner, it is considered a passive loss, or a passive activity loss. As the owner of a rental, it is important to understand what passive losses are on a rental property.  ### What is a Passive Activity Loss? A passive activity loss occurs when a rental property's operating expenses exceed its rental income. If an investor owns more than one rental property, the calculations are made for all properties combined. Rental income and losses are reported on the [IRS Schedule E](https://www.irs.gov/forms-pubs/about-schedule-e-form-1040) form.  ### Expectations for Deducting Passive Losses In most cases, taxpayers cannot deduct passive losses on income taxes against non-passive earnings. There are two cases in which passive losses can be deducted:  - If the owner's modified adjusted gross income is under $100,000, they might be able to deduct up to $25,000 of rental losses if they are actively involved in managing the rental and have a minimum of a 10% ownership interest.  - Qualified real estate professionals can write off passive activity losses if they materially participate in the rental operations. They must work at least 750 hours annually in real estate, and over 50% of their work is on their real estate business.  Other than these two instances, passive losses likely won’t be able to be deducted from non-passive income.  ### Depreciation In rentals, a common reason for a passive loss is depreciation. Depreciation deductions are costs incurred for buying and improving rental property that can be deducted on taxes. This sometimes means a passive loss for tax purposes, even if the owner made a net profit.  For example, if an investor owns a rental property outright and nets a rental income of $5,000, but the depreciation deduction is $6,000, there would be a passive loss of $1,000 for tax purposes only. In theory, the investor still has $5,000 in net income.  Depreciation deductions are calculated based on the owner’s basis in the property, or how much they paid for the property. They can only base the depreciation deduction on the fair market value or assessed real estate tax value of the structure, not the land. Because there are many factors that play into calculating depreciation, it is advisable to work with a tax professional to determine the depreciation for a particular property.  ### Suspended Passive Losses Passive losses that were not deductible in a tax year can be carried over to future years, called a[ suspended loss](https://www.realized1031.com/glossary/suspended-loss). For example, if a property owner has a suspended loss of $5,000 from a passive activity in a tax year, that amount can be deducted from earnings from that activity in the following years where there are passive earnings. So, if the next year the passive earnings reach $20,000, the $5,000 loss from the previous year can be applied against the earnings. This will leave the taxpayer with $15,000 of declarable income.  For passive losses on rental property, it is best to consult with a professional because of the complex calculations involved. This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. Learn Ways To Help Build Long-Term Real Estate Wealth [![Get Tips For Managing Real Estate Wealth](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/IPWM-eBook-250c.jpg?width=250&height=250&name=IPWM-eBook-250c.jpg "Learn new ways to use real ...") ](https://www.realized1031.com/blog/what-are-passive-losses-on-rental-property#blogform) Download eBook ---   --- ### Get Tips For Managing Real Estate Wealth ![Learn Ways To Help Build Long-Term Real Estate Wealth](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/IPWM-eBook-550.jpg?width=550&height=650&name=IPWM-eBook-550.jpg) Learn new ways to use real estate to pursue your wealth goals. By providing your email and phone number, you are opting to receive communications from Realized. If you receive a text message and choose to stop receiving further messages, reply STOP to immediately unsubscribe. Msg & Data rates may apply. To manage receiving emails from Realized visit the Manage Preferences link in any email received. Search ### [Why Realized](https://www.realized1031.com/why-realized) - [Wealth Management](https://www.realized1031.com/the-wealth-management-gap) - [Why Realized](https://www.realized1031.com/why-realized) - [Our Process](https://www.realized1031.com/how-realized-works) - [Scenarios](https://www.realized1031.com/scenarios) - [Private Client Program](https://www.realized1031.com/private-client) - [Realized Exchange Services](https://www.realized1031.com/realized-exchange-services) ### [The Company](https://www.realized1031.com/about-us) - [The Team](https://www.realized1031.com/about-us) - [FAQ](https://www.realized1031.com/frequently-asked-questions) - [Testimonials](https://www.realized1031.com/testimonials) - [Press](https://www.realized1031.com/press) - [Careers](https://www.realized1031.com/careers) ### [Partners](https://www.realized1031.com/partners) - [Financial Advisors](https://www.realized1031.com/advisor) - [Broker Dealers](https://www.realized1031.com/partners/broker-dealers) - [Real Estate Agents](https://www.realized1031.com/partners/real-estate-agents) - [Certified Public Accountants](https://www.realized1031.com/partners/certified-public-accountants) ### [Resources](https://www.realized1031.com/resources) - #### Learn - [Articles](https://www.realized1031.com/blog) - [Glossary of Terms](https://www.realized1031.com/glossary) - [Capital Gains Tax Rates](https://www.realized1031.com/capital-gains-tax-rate) - #### Watch - [Video Library](https://www.realized1031.com/videos) - [Webinar Archive](https://www.realized1031.com/webinars) - #### Read - [Delaware Statutory Trust](https://www.realized1031.com/delaware-statutory-trust) - [Tenants-In-Common](https://www.realized1031.com/tenants-in-common-tic) - [1031 Exchange](https://www.realized1031.com/1031-exchange) - [Qualified Intermediary](https://www.realized1031.com/qualified-intermediary) - [Qualified Opportunity Zones](https://www.realized1031.com/opportunity-zones) #### Realized - 500 W 13th Street Austin, TX 78701 - (877) 797-1031 ##### [Contact Us](https://www.realized1031.com/contact-us) - [![Realized on Facebook](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-facebook-whiterev.png?width=60&height=60&name=social-facebook-whiterev.png)](https://www.facebook.com/Realized/) - [![Realized on LinkedIn](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-linkedin-whiterev.png?width=60&height=60&name=social-linkedin-whiterev.png)](https://www.linkedin.com/company/realized/) - [![Realized on YouTube](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-youtube-whiterev.png?width=60&height=60&name=social-youtube-whiterev.png)](https://www.youtube.com/c/Realized1031?sub_confirmation=1) - [![Realized Holdings, Inc. BBB Business Review](https://www.realized1031.com/hs-fs/hubfs/Images/professional-assoc/bbb/RZH2-bbb-seal.png?width=40&height=65&name=RZH2-bbb-seal.png)](http://www.bbb.org/central-texas/business-reviews/real-estate-investors/realized-holdings-llc-in-austin-tx-1000112948/#bbbonlineclick) - [![FEA Logo](https://www.realized1031.com/hs-fs/hubfs/Images/professional-assoc/fea/RZH2-fea-logo.png?width=82&height=65&name=RZH2-fea-logo.png "FEA Logo")](https://www.1031.org) SECURITIES DISCLOSURE Realized1031.com is a website operated by Realized Technologies, LLC, a wholly owned subsidiary of Realized Holdings, Inc. (“Realized Holdings”). Securities and/or Investment Advisory Services may be offered through Registered Representatives or Investment Advisor Representatives of Realized Financial, Inc. ("Realized"), a broker/dealer, member [FINRA](https://www.finra.org)/[SIPC](https://www.sipc.org/), and registered investment adviser. Realized is a subsidiary of Realized Holdings, Inc. ("Realized Holdings"). Check the background of this firm on [FINRA's BrokerCheck](https://brokercheck.finra.org/firm/summary/22333). Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment. Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain and should not be deemed a complete investment program. The value of the investment may fall as well as rise and investors may get back less than they invested. This site is published for residents of the United States who are accredited investors only. Registered Representatives and Investment Advisor Representatives may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed until appropriate registration is obtained or exemption from registration is determined. Not all of services referenced on this site are available in every state and through every representative listed. For additional information, please contact the Realized Compliance department at 512-472-7171 or info@realized1031.com. - [Terms & Conditions](https://www.realized1031.com/terms-and-conditions) - [Privacy Policy](https://www.realized1031.com/privacy-policy) - [Form CRS](https://www.realized1031.com/hubfs/common-files/disclosures/FormCRS.pdf) - [ADV 2A](https://www.realized1031.com/hubfs/common-files/disclosures/ADV2A.pdf) - [Reg BI Disclosures](https://www.realized1031.com/hubfs/common-files/disclosures/RegBI.pdf) -   © 2026 Realized Holdings, Inc. ```json { "@context" : "http://schema.org/", "@type" : "BlogPosting", "articleBody" : "If there is a loss realized on a rental property that generates passive income for the owner, it is considered a passive loss, or a passive activity loss. As the owner of a rental, it is important to understand what passive losses are on a rental property. What is a Passive Activity Loss? A passive activity loss occurs when a rental property's operating expenses exceed its rental income. If an investor owns more than one rental property, the calculations are made for all properties combined. Rental income and losses are reported on the IRS Schedule E form. Expectations for Deducting Passive Losses In most cases, taxpayers cannot deduct passive losses on income taxes against non-passive earnings. There are two cases in which passive losses can be deducted: If the owner's modified adjusted gross income is under $100,000, they might be able to deduct up to $25,000 of rental losses if they are actively involved in managing the rental and have a minimum of a 10% ownership interest. Qualified real estate professionals can write off passive activity losses if they materially participate in the rental operations. They must work at least 750 hours annually in real estate, and over 50% of their work is on their real estate business. Other than these two instances, passive losses likely won’t be able to be deducted from non-passive income. Depreciation In rentals, a common reason for a passive loss is depreciation. Depreciation deductions are costs incurred for buying and improving rental property that can be deducted on taxes. This sometimes means a passive loss for tax purposes, even if the owner made a net profit. For example, if an investor owns a rental property outright and nets a rental income of $5,000, but the depreciation deduction is $6,000, there would be a passive loss of $1,000 for tax purposes only. In theory, the investor still has $5,000 in net income. Depreciation deductions are calculated based on the owner’s basis in the property, or how much they paid for the property. They can only base the depreciation deduction on the fair market value or assessed real estate tax value of the structure, not the land. Because there are many factors that play into calculating depreciation, it is advisable to work with a tax professional to determine the depreciation for a particular property. Suspended Passive Losses Passive losses that were not deductible in a tax year can be carried over to future years, called a suspended loss. For example, if a property owner has a suspended loss of $5,000 from a passive activity in a tax year, that amount can be deducted from earnings from that activity in the following years where there are passive earnings. So, if the next year the passive earnings reach $20,000, the $5,000 loss from the previous year can be applied against the earnings. This will leave the taxpayer with $15,000 of declarable income. For passive losses on rental property, it is best to consult with a professional because of the complex calculations involved. This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.", "articleSection" : [ "Real Estate Investing" ], "author" : { "@type" : "Person", "email" : "marketing@realized1031.com", "image" : "", "name" : "The Realized Team", "url" : "https://www.realized1031.com/blog/author/the-realized-team" }, "dateModified" : "2024-05-01T02:43:59+0000", "datePublished" : "2024-05-01T02:43:59+0000", "description" : "If there is a loss realized on a rental property that generates passive income for the owner, it is considered a passive loss, or passive activity loss.", "headline" : "What are Passive Losses on Rental Property?", "image" : { "@type" : "ImageObject", "height" : 499, "url" : "https://f.hubspotusercontent10.net/hubfs/733513/Images/photo/abstract/for-rent-house-IS-149060607.jpg", "width" : 750 }, "mainEntityOfPage" : "https://www.realized1031.com/blog/what-are-passive-losses-on-rental-property", "name" : "What are Passive Losses on Rental Property?", "publisher" : { "@type" : "Organization", "address" : { "@type" : "PostalAddress", "addressCountry" : "USA", "addressLocality" : "Austin", "addressRegion" : "TX", "postalCode" : "78701", "streetAddress" : "500 W 13th Street " }, "logo" : { "@type" : "ImageObject", "height" : 60, "url" : "http://www.realized1031.com/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black-No-Margin-296x60-AMP.png", "width" : 296 }, "name" : "Realized" }, "thumbnailUrl" : "https://f.hubspotusercontent10.net/hubfs/733513/Images/photo/abstract/for-rent-house-IS-149060607.jpg" } ```