Exception for Certain Rental Real Estate Activities
If you meet all of the following conditions, your rental real estate losses are NOT limited by the passive activity loss rules. If you do not meet all of these conditions, see the Instructions for Form 8582 to find out if you must complete and attach Form 8582 to figure any losses allowed.
1. Rental real estate activities are your only passive activities.
2. You do not have any prior year unallowed losses from any passive activities.
3. All of the following apply if you have an overall net loss from these activities:
a. You actively participated in all of the rental real estate activities;
b. If married filing separately, you lived apart from your spouse all year;
c. Your overall net loss from these activities is $25,000 or less ($12,500 or less if married filing separately);
d. You have no current or prior year unallowed credits from passive activities; and
e. Your modified adjusted gross income is $100,000 or less ($50,000 or less if married filing separately).
See Form 8582 Instructions on the IRS site for full details.