Passive Income and Losses in Real Estate

Rental properties that lose money are classified as passive losses for tax purposes. They are deductible on against passive income you earn during the year. Passive income includes regular earnings from a source other than an employer or contractor. The IRS says passive income can come from two sources: rental property or a business in which one does not participate. Rental property losses that are not deductible right away are called suspended passive losses. These deductions are not lost forever. Rather, they are carried forward indefinitely. You may deduct your suspended passive losses from the profit you earn when you sell your property.