Free tool — no sign-up required
Rental PAL calculator
Rental losses are passive by default. Most investors can only deduct up to $25,000 per year — and that allowance phases out completely above $150,000 AGI. Enter your numbers to see what's actually deductible this year versus what gets suspended in carryforward.
Educational estimate — not tax advice. Passive activity determinations are fact-specific. Confirm with your CPA.
Rental property activity
Aggregate totals across all your rental properties
Total rent received before any expenses
Mortgage interest, property tax, insurance, repairs, management fees
Annual depreciation deduction (building cost ÷ 27.5 years)
Net loss — passive activity rules determine how much is deductible
Your tax situation
Used to calculate the $25k allowance phase-out
Carryforward from prior years — enter 0 if first year or no carryforward
750+ hours/year in real property businesses + more than half your work time
This year’s rental result
($7,000)
Net rental loss
Loss allocation
Deductible this year
Allowance phased out at your AGI
Suspended this year
Added to carryforward
$$7,000 suspended — AGI too high for the allowance
At AGI $150k+, the $25k allowance is fully phased out. Losses are suspended until you have passive income or sell the property.
Educational estimate. Passive activity determinations are fact-specific. Confirm with your CPA before filing.
Three ways to use rental losses
The default passive classification has three exceptions — each with different requirements and tradeoffs.
AGI ≤ $100k
$25k allowance
If AGI is $100,000 or below and you actively participate (approve tenants, set rents, authorize repairs), up to $25,000 of rental losses can offset ordinary income annually. Phases out $100k–$150k. Gone above $150k.
750+ hours / majority of work time
Real Estate Professional
A Real Estate Professional (750+ hours in real property businesses, more than half of total work time) can treat rentals as non-passive — if they also materially participate in each property. Most W-2 employees can't meet the majority test.
Avg stay ≤ 7 days + 500 hrs
Short-term rental (7-day rule)
An STR with average stays of 7 days or fewer isn't a rental activity under IRC 469(c)(2). It's treated as a business for passive purposes. Material participation (typically 500+ hours) makes losses non-passive — deductible against any income.
Read next
Passive Activity Loss Rules: Why Rental Losses Get Stuck
Rental losses are passive by default — they can only offset passive income, not your W-2 or business income. Here's how the $25k allowance works, when it phases out, and the three exceptions.
Real estate taxShort-Term Rental Tax Rules: The 7-Day Rule, Passive vs. Non-Passive, and the Vacation Home Trap
If your Airbnb averages 7 days or fewer per stay, it's not a rental property under the tax code — it's a business. That changes whether your losses can offset your ordinary income.
Tax planningDepreciation Recapture: Why Selling Business Assets Costs More Than You Expect
When you sell a depreciated business asset, the IRS recaptures those deductions — taxing the gain up to the amount of depreciation taken at ordinary income rates. Section 1245 vs Section 1250, the impact of bonus depreciation, and how recapture affects business sales.