What this line means
The portion of your rental real estate loss that is actually deductible after applying passive activity loss limitations. This amount comes directly from Form 8582. If line 21 shows a loss and you meet the active participation requirement, Form 8582 calculates how much of that loss you can use against your other income this year. The rest is suspended and carried forward.
Does this apply to you?
- You have a net loss on one or more rental properties and need to determine the deductible amount
- Your modified adjusted gross income is under $150,000 and you actively participate in managing the rental
- You qualify as a real estate professional and your rental losses are not limited by passive activity rules
- You have prior-year suspended passive losses that are now usable
Easy to overlook
Real estate professionals bypass the $25,000 limit entirely If you spend more than 750 hours per year in real estate activities and more time in real estate than in any other occupation, you qualify as a real estate professional. This reclassifies your rental activity as nonpassive, meaning losses are fully deductible with no $25,000 cap and no income phaseout. Both spouses cannot aggregate hours — each must independently meet the test unless one spouse qualifies. 1 IRS Publication 925 — Passive Activity and At-Risk Rules
Grouping elections can save suspended losses You can elect to group all rental properties as a single activity on Form 8582. This lets you offset income from profitable properties against losses from others before the passive activity limitation applies. Without the grouping election, each property is tested separately, which can result in more suspended losses. File the grouping election the first year you want it to apply — it is binding for future years. 2 IRS Form 8582 instructions — Rental Real Estate Activities
Watch out for this
Filing status affects the $25,000 special allowance. Married filing separately eliminates the allowance entirely unless you lived apart from your spouse for the entire year. If you lived apart all year and file separately, the allowance is reduced to $12,500. Married couples filing jointly share a single $25,000 allowance, not $25,000 each.
Footnotes
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IRS Publication 925, Passive Activity and At-Risk Rules, Real Estate Professional. https://www.irs.gov/pub/irs-pdf/p925.pdf ↩
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IRS Form 8582 Instructions, Grouping Activities. https://www.irs.gov/instructions/i8582 ↩