Rental Property Passive Loss Suspension Calculator 2026
Determine how much rental property loss you can deduct this year under the $25K active participation allowance and MAGI phase-out rules of IRC §469.
How Rental Passive Loss Suspension Works Under IRC §469
Under the passive activity loss rules of IRC §469, losses from rental real estate are generally treated as passive losses — meaning they can only offset passive income, not wages or active business income. However, Congress created a special $25,000 allowance for small landlords who actively participate in managing their rental properties. This allowance phases out between $100,000 and $150,000 MAGI.
If your MAGI is below $100,000, you can deduct up to $25,000 of rental losses against any income (wages, interest, dividends). If your MAGI is between $100,000 and $150,000, the $25,000 allowance is reduced by 50 cents for every dollar above $100,000. At $150,000 MAGI, the allowance is completely eliminated. Source: IRC §469(i). Last updated: May 2026.
Phase-Out Table: $25K Allowance by MAGI
| MAGI | Maximum Allowance | Phase-Out Reduction |
|---|---|---|
| $100,000 or less | $25,000 | $0 |
| $110,000 | $20,000 | $5,000 |
| $120,000 | $15,000 | $10,000 |
| $130,000 | $10,000 | $15,000 |
| $140,000 | $5,000 | $20,000 |
| $150,000+ | $0 | $25,000 (fully phased out) |
Real Estate Professional Status — The Full Deduction Path
If you or your spouse qualifies as a real estate professional under IRC §469(c)(7), the rental passive loss rules do not apply at all. To qualify, you must spend 750+ hours per year in real property trades or businesses, AND more than half of all your personal services must be in real property. If qualified, all rental losses are non-passive and fully deductible against any income — regardless of MAGI. This is the most powerful rental tax benefit available. It requires robust time records and usually applies to spouses of W-2 earners who work full-time in real estate.
Suspended Losses Are Not Lost — They Carry Forward
Any portion of your passive loss that exceeds your allowance for the year is suspended — carried forward on Form 8582. Suspended losses can offset future passive income from this or other rental activities. Critically, all suspended losses are released in full when you sell the property in a fully taxable transaction to an unrelated party. A property with $80,000 of suspended losses that you sell produces an $80,000 deduction in the sale year — often offsetting the depreciation recapture tax. Plan your exit strategy around this timing.