Rental losses can be offset against nonpassive income, like wages or salaries, by individuals who actively participate in rental real estate activities, as allowed by the IRS. Beginning at $100,000, this allowance is gradually phased out for taxpayers and is completely phased out at $150,000. This is an illustration for the explanation.

In 2023, an unmarried person earned $200,000 before any IRA deduction. The taxpayer lost $30,000 in 2023 because of his involvement in rental real estate. What is the amount of loss that this rental real estate carries in 2023 that can be used to offset income from nonpassive sources?

Due to the fact that the taxpayer's AGI is $200,000, the phase-out rules prohibit the use of the $25,000 allowance. The $30,000 loss from rental real estate is not eligible to be used to counterbalance nonpassive income in 2023. The loss will probably be transferred to future years as a passive activity loss.

To sum up, a $30,000 real estate loss cannot be claimed in 2023, but it is postponed until the following year.

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