Passive Loss Real Estate $25,000 2026 Calculator
The passive loss real estate $25,000 special allowance under IRC §469(i) lets active-participating landlords deduct up to $25,000 of rental losses against ordinary income. It phases out $1 for every $2 of Modified AGI above $100,000 and disappears completely at $150,000 — leaving the rest as suspended carryforward losses.
| Modified AGI | — |
| Statutory cap (§469(i)) | — |
| Phase-out reduction | — |
| Effective allowance after phase-out | — |
| Active participation | — |
| Current-year loss | — |
| Prior-year suspended losses | — |
| 2026 allowed deduction | — |
| Carried forward to 2027 | — |
Under IRC §469, rental real estate is by default a passive activity — losses are deductible only against other passive income or when the property is sold. The §469(i) "special allowance" creates a narrow exception for middle-income landlords who actively participate: up to $25,000 of net rental real estate loss can offset ordinary wage and portfolio income, with a phase-out between $100,000 and $150,000 Modified AGI.
How the Phase-Out Works
The $25,000 cap is reduced by 50% of Modified AGI exceeding $100,000. Examples: MAGI $110K = $5K reduction = $20K cap. MAGI $130K = $15K reduction = $10K cap. MAGI $150K+ = $0 (gone). For Married Filing Separately who lived apart all year, the cap is $12,500 and the phase-out runs $50K–$75K. MFS who lived together get $0 — no special allowance at all. Real estate professionals (§469(c)(7)) skip §469(i) entirely and can deduct unlimited rental losses against ordinary income.
What Counts As Active Participation
Active participation is a lower bar than "material participation" — you don't need to spend 500+ hours. It requires 10%+ ownership by value and bona fide management decisions: approving new tenants, setting rental terms, approving capital expenditures and repairs, or signing off on policy. Hiring a property manager doesn't disqualify you as long as YOU make the final decisions. Limited partners are statutorily barred — LP interests in real estate partnerships cannot use the §25,000 allowance.
Suspended Loss Carryforward
Losses denied by the AGI phase-out (or that simply exceed the $25,000 cap) become suspended passive activity losses. They carry forward indefinitely on Form 8582 until: (1) the activity generates net passive income, (2) the taxpayer disposes of the activity in a fully taxable transaction (then all suspended losses become deductible against any income type), or (3) Modified AGI falls back below $150,000 and the allowance restores. There is no expiration — suspended losses can sit on Form 8582 for decades.
$25,000 vs Real Estate Professional Status
If you can't fit under §469(i), the next option is real estate professional (REP) status under §469(c)(7): 750+ hours and more than 50% of your personal services in real property trades or businesses, plus material participation in each rental (or an aggregation election). REP status unlocks unlimited rental loss deductibility against ordinary income but is hard to claim for full-time W-2 employees. The IRS audits REP claims aggressively — see the IRS Passive Activity Loss Audit Technique Guide. Last updated May 2026.