Passive Loss Suspension Calculator (Real Estate)
Section 469 limits deductibility of passive losses against active income. Rental real estate losses are passive by default. Three exceptions to the rule: (1) $25,000 active-participation allowance (phases out at $100-150K MAGI). (2) Real Estate Professional Status (REPS) — 750+ hrs/yr. (3) Suspended losses released on disposition.
How Passive Loss Limitation Works
Section 469 limits passive activity losses (PAL) to passive income. Rental real estate is passive by definition, even with active management. Three escape routes: (1) Active participation — modest involvement, allows up to $25K loss against active income. (2) Real Estate Professional Status — 750+ hours AND 50%+ of personal services in real property. (3) Disposition — sell property, all suspended losses released.
$25K Active Participation Allowance
Requires: 10%+ ownership stake, day-to-day management involvement (approving tenants, setting rents, managing capex). Allows up to $25,000 loss against ordinary income annually. Phases out from $100K-$150K MAGI: at $125K MAGI, allowance is $12,500. Above $150K MAGI: zero. Half-cliff makes high earners ineligible. Plan timing of loss recognition around MAGI.
REPS Documentation Requirements
Real Estate Pro Status requires contemporaneous time records: (1) 750+ hours total in real property trades. (2) More than 50% of personal services in real property trades. Court cases (Bailey v. Comm'r, others) have invalidated REPS for taxpayers without contemporaneous logs. Maintain detailed calendar entries with date, hours, specific tasks performed. Spouse hours don't count unless spouse also qualifies independently.
Source: IRC §469, Treas. Reg. §1.469-1T, Bailey v. Comm'r T.C. Memo 2001-296. Last updated: May 2026.