Guide for rental owners
Passive loss carryover: don't lose your rental losses
A rental loss you can't use this year isn't wasted. It carries forward.
Thanks to depreciation, many rentals show a loss on paper even when rent comes in every month. Whether you can use that loss this year depends on your income, and if you can't, it isn't wasted. It carries forward.
The $25,000 allowance
Rental income is usually "passive," and passive losses generally only offset passive income. But if you actively participate in managing your rental (approving tenants, setting rent, approving repairs), you may deduct up to $25,000 of rental losses against your other income. That allowance phases out as your modified adjusted gross income goes from $100,000 to $150,000.
What carries forward
Losses you can't use are tracked on Form 8582 and carried forward year after year. They lower the tax on your rental's profit in later years, and anything left is generally released when you sell the property.
What a lost carryover costs
A $15,000 carryover that gets dropped when you switch preparers → about $4,800 of tax you'd pay for no reason (at a 32% rate).
How carryovers get lost
The number lives on a form in your preparer's files. Switch preparers or tax software, and it's easy for it to fall through the cracks. Ask for your "suspended passive loss" from last year's Form 8582, and keep it with your books.
Real estate professionals follow different rules. Your CPA can tell you whether they apply to you.
Tethered Properties does this for you
Tethered Properties keeps your carryover with your books year after year, so it travels with you whoever does your taxes, and shows how much of your rent is actually taxable.
This guide is general information for rental owners, not tax advice. Tax rules change and every situation is different; your CPA or tax advisor knows your full picture. Figures are estimates.