You Make the Call - April 23, 2026

Question: Dana, who is single, owns one residential rental house. During 2025, Dana approved the tenant, set the rental terms and approved a $2,100 expenditure for roof work, so Dana actively participated in the rental. Dana’s modified adjusted gross income (MAGI) for §469(i) purposes, before the rental loss, was $92,000. After depreciation, the rental produced an $18,000 loss reported on Schedule E (Form 1040), Supplemental Income and Loss. Dana was fully at risk, had no other passive activities and had no suspended passive losses from prior years. Can Dana deduct the full $18,000 rental loss against wage income on Form 1040, U.S. Individual Income Tax Return, for 2025?

Answer: Yes. Rental real estate is generally passive under §469(c)(2). However, §469(i) allows up to $25,000 of rental real estate loss to offset nonpassive income when the taxpayer actively participates and MAGI does not exceed $100,000.

Dana actively participated, had MAGI of $92,000 and the loss was $18,000, which is below the $25,000 special allowance. No phaseout applies because Dana's MAGI is below $100,000. Because Dana was fully at risk, had no other passive activities and had no prior-year suspended passive losses, Dana may deduct the full $18,000 rental loss against wage income for 2025.

In this fact pattern, Form 8582 is not required. The 2025 instructions for Form 8582, Passive Activity Loss Limitations, state that Form 8582 is not required if rental real estate activities with active participation were the taxpayer’s only passive activities, there are no prior-year unallowed passive losses the total loss does not exceed $25,000, there are no current or prior-year unallowed passive activity credits, MAGI does not exceed $100,000, and the taxpayer does not hold the interest as a limited partner or trust beneficiary.