When a taxpayer experiences a net loss from a nonresidence (rental property):
a. the taxpayer will not be allowed to deduct the loss under any circumstance if the taxpayer does not have passive income from other sources.
b. the loss is fully deductible against the taxpayer's ordinary income no matter the circumstances.
c. if the taxpayer is not an active participant in the rental, the taxpayer may be allowed to deduct the loss even if the taxpayer does not have any sources of passive income.
d. if the taxpayer is not allowed to deduct the loss due to the passive activity loss limitations, the loss is suspended and carried forward until the taxpayer generates passive income or until the taxpayer sells the property.

D) if the taxpayer is not allowed to deduct the loss due to the passive activity loss limitations, the loss is suspended and carried forward until the taxpayer generates passive income or until the taxpayer sells the property.

Explanation:

If the taxpayer is able to qualify for one of the two exemptions from the passive loss limits, he/she might be able to deduct their losses. If the taxpayer is not a real estate professional, he/she can deduct up to to $25,000 of losses from real estate rental activities against active and portfolio income.

This deduction is lowered by 50% of the individual's AGI in excess of $100,000. This entire deduction is completely phased out if the individual's AGI reaches $150,000. For married couples filing separately, this deduction is lowered to $12,500 and starts to phase out at an AGI of $50,000.

If the taxpayer does not qualify under any of the two possible exemptions, he/she will need to suspend the loss and carry it forward until the porperty is sold or the taxpayer generates other passive income from which to deduct this loss.

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