Deducting your rental property tax losses against your other income is tricky, as you likely know. You have to get the tax law to treat you—say, a computer engineer—as a tax-code–defined real estate professional.
Let’s say you get there. Does that status allow immediate use of suspended passive losses? Unfortunately, the answer is no. Here’s why.
Understanding Passive Loss Rules
The tax code limits passive loss deductions to passive income, with any excess carried forward to future years. You release the carried-forward losses when you
have offsetting passive income from the same or other passive activities, or
completely dispose of the activity generating the loss.

Real Estate Professional Status
Qualifying as a real estate professional under IRS rules requires meeting two tests annually:
Spend more than 50 percent of your work time in real property trades or businesses.
Perform at least 750 hours of your work in real property trades or businesses.

Material Participation
Additionally, you must materially participate in the rental activity to create non-passive losses.

The Two-Part Solution 

Meeting (1) the real estate professional test and (2) the material participation standard allows current-year rental losses to offset non-passive income, such as wages or business income.
If you want to discuss about Real Estate Tax Planning, please get in touch with us at hfintax.comello@ag.

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