Rental activities are considered passive activities by definition and are subject to passive activity loss limitation rules. The taxpayer's level of participation in their rental real estate activities impacts how losses are treated in the tax return.
Program Entry:
Each property's income and expenses should be reported on its own Schedule E.
The Schedule E can be accessed in the program by going to:
- Federal
- Income (select my forms)
- Profit or Loss from Rentals and Royalties (Reported on Schedule E)
Active Participation
A taxpayer is considered to actively participate in rental real estate activity if the taxpayer, and the taxpayer's spouse if filing joint, own at least 10% of the rental property and make management decisions in a significant and bona fide sense. Management decisions include approving new tenants, deciding on rental terms, and approving expenditures.
In the program, the taxpayer must indicate if they actively participated in the business. To check and/or update this info for a property, select to edit the property from the Schedule E menu, then from the property's "Schedule E - Rents & Royalties Basic Information" select:
- Check if you actively participated
Real Estate Professional
Activities of real estate professionals are not treated as passive activities. The taxpayer qualifies as a real estate professional if both of the following conditions are met:
- More than half of the personal services the taxpayer performed in all trades or businesses during the year were performed in real property trades or businesses in which the taxpayer materially participated, and
- The taxpayer performed more than 750 hours of services during the tax year in real property trades or businesses in which the taxpayer materially participated.
In the program, the taxpayer must indicate if they are a real estate professional.. To check and/or update this info for a property, select to edit the property from the Schedule E menu, then from the property's "Schedule E - Rents & Royalties Basic Information" select:
- Check here if you are a real estate professional or sold or disposed of the property this year.