Why Your Rental Losses Are Stuck | Three Things Thursday

If your rental real estate is generating losses you can't seem to use, you're not doing something wrong — you may just be caught in a trap most investors don't know exists. In this episode of Three Things Thursday, I'm breaking down the passive loss rules that trip up real estate investors at every level — and what it actually takes to do something about them. Here's what we cover: ▶ Thing #1 — Rental real estate is passive by default. Always. Passive losses can only offset passive income — not your W-2, not your business income. There's a $25,000 exception for active participants, but it phases out between $100,000 and $150,000 of MAGI — at 50 cents on the dollar — and has never been indexed for inflation since 1986. ▶ Thing #2 — Real Estate Professional Status (REPS) is the mechanism that converts your rental activity from passive to non-passive. But it has two hard tests: more than 50% of your total personal services must be in real estate trades or businesses, AND more than 750 hours. Married filing jointly: one spouse must meet both tests alone. And you still need material participation in each property. ▶ Thing #3 — What REPS doesn't do. It doesn't help if you have no losses to unlock. It doesn't override basis or at-risk limitations. Your Realtor® spouse doesn't qualify you. And it doesn't survive audit without a contemporaneous hours log. Also: Section 162 trade or business status is a lower bar for some problems — but it opens QBID, which runs both ways. Profitable years, beneficial. Loss years, negative QBI carries forward. You don't get to pick. Whether you're a newer investor or you've been in the game for years — these distinctions will change how you think about your rental portfolio. Three Things Thursday drops every week. Subscribe so you don't miss it. 🔗 Questions about your specific situation? Visit us at bourbonnaistax.com