Form 8582 to figure your allowable loss from passive activities-2025

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Form 8582 must generally be filed by taxpayers who have an overall gain (including any prior year unallowed losses) from business or rental passive activities.
Passive activity loss rules state that passive losses can be used only to offset passive income. A passive activity is one in which the taxpayer did not materially participate during the year in question. Common passive activity losses may stem from leasing equipment, real estate rentals, or limited partnerships.
At its core, the $25,000 rental passive loss limitation is a tax provision that allows real estate investors to deduct up to $25,000 of losses from passive rental activities against their non-passive income. Generally, passive losses are only allowed to offset passive gains.
If you actively participated in a passive rental real estate activity, you may be able to deduct up to $25,000 of loss from the activity from your nonpassive income. This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities.
What is the loophole for passive activity loss? The main loophole is qualifying as a real estate professional under IRS rules. If you meet the 750-hour rule and materially participate in your rentals, your losses are considered active and deductible against all income.

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How to calculate passive activity loss. Passive activity loss is calculated by subtracting the sum of passive activity gross income and net active income from all passive activity expenses.
Under the passive activity rules you can deduct up to $25,000 in passive losses against your ordinary income (W-2 wages) if your modified adjusted gross income (MAGI) is $100,000 or less. This deduction phases out $1 for every $2 of MAGI above $100,000 until $150,000 when it is completely phased out.
Passive activity loss is calculated by subtracting the sum of passive activity gross income and net active income from all passive activity expenses.

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