(Jan. 24, 2019) On July 1, a piece of state legislation commonly called the Airbnb bill will take effect, placing a tax on all short-term vacation rentals under 31

What are typical tax deductions/benefits for real estate professionals (licensed agents) that also own rental property?

Rental real estate is generally considered a passive activity and passive activity losses can only be used to offset passive income. Very often licensed real estate agents can qualify as real estate professionals and therefore are not subject to Passive Activity Losses Limitations on rental real estate.

The agent has to be self-employed or a 5% or greater owner of the real estate business and the agent has to be actively involved in managing the rental real estate to qualify.

By avoiding PAL limitations realtors benefit from a special allowance of $25,000 in deductible passive losses annually ($12,500 for married individuals filing separate returns and living apart at all times during the year). Basically this means $25K of passive losses can be used to offset ordinary income and not just passive income.

The allowance is reduced by 50% of the amount of your modified adjusted gross income that’s more than $100,000 ($50,000 if you’re married filing separately). If your modified adjusted gross income is $150,000 or more ($75,000 or more if you’re married filing separately), you generally can’t use the special allowance.