The formulas
- Base allowance = $25,000 ($12,500 if married filing separately and living apart all year; $0 if filing separately and living together at any time)
- Phase-out = 50% x (AGI - $100,000), or 50% x (AGI - $50,000) for separate filers who lived apart
- Allowance = max(0, base - phase-out); allowed loss = min(loss, allowance)
How it works
Section 469(i) lets an individual who actively participates in rental real estate deduct up to $25,000 of passive loss against other income. The allowance drops by 50 percent of the amount AGI exceeds $100,000, so it is gone at $150,000.
A married person filing separately gets $12,500 and the phase-out starts at $50,000, so the allowance is gone at $75,000, but only if the spouses lived apart all year. If they lived together at any time, the allowance is zero. A person with less than a 10 percent interest is not treated as actively participating. The suspended amount stays subject to the passive loss rules.
Illustrative figures only. Check the result against your firm's methodology before relying on it.
Common questions
Where do the dollar amounts come from?
The $25,000 allowance and the $100,000 phase-out start are written in section 469(i). The $150,000 end point follows from the 50 percent reduction.
Is there an ownership minimum?
Yes. A person with an interest of less than 10 percent by value is not treated as actively participating.
Which AGI do I enter?
The adjusted gross income the statute defines for this test. Section 469(i)(3)(E) lists the modifications, such as leaving out taxable Social Security benefits and student loan interest.
Sources
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