Can I Deduct My Rental Property Losses From W2 Income If I'm Actively Participating?

Thanks for the explanation. That's disappointing but makes sense. So basically those losses just sit there until we either get other passive income or sell the property? Also, is there anything we can do now to create some passive income that would let us use some of these deductions? I've heard about investing in REITs - would that potentially help?

Yes, those losses will just sit there until you can use them. They're carried forward indefinitely, so you don't lose them - they're just on hold. Regarding creating passive income, REITs generally produce ordinary dividends, not passive income in the IRS sense. Your best options would be investing in other rental properties that generate positive income, passive investing in a business, or certain investment partnerships. Another strategy some high-income professionals consider is looking into whether they qualify as a "real estate professional" for tax purposes, which requires 750+ hours working in real estate activities. This is challenging with full-time jobs but might be worth exploring if one of you could reduce work hours and significantly increase time spent on managing rental properties.

Did they actually help with finding ways to use the passive losses sooner rather than later? I'm in a similar situation with about $12k of rental losses from last year that I can't seem to use because of the income limits.

I'm skeptical about these online services. How is this different from just talking to a CPA? And do they give actual tax advice or just analyze documents? My rental situation is complicated with properties in multiple states.

They actually provided several strategies I hadn't considered. In my case, they identified that my spouse could potentially qualify as a real estate professional if we reorganized how we documented time spent on property activities, which would allow us to use the losses against ordinary income. For multi-state properties, they're actually really good because their system automatically checks against state-specific tax rules. They don't replace a CPA but complement them - in fact, my CPA now asks for their analysis reports before we meet because it organizes everything. It's more than document analysis; they provide strategic options based on your specific situation and tax history.

How does this actually work? Seems weird that they can somehow get through faster than I can on my own. Do they just call repeatedly until they get through?

Sorry, but this sounds like a scam. There's no way to "skip the line" with the IRS. They're just charging you to sit on hold, which you could do yourself for free. I'll stick with spending my morning on hold rather than paying some company to do it.

It's not about skipping any lines. They use an automated system that handles the IRS phone tree navigation and hold times for you. They call the IRS and wait in the queue, then when they finally reach an agent, they call you and connect the call. You don't have to sit there listening to hold music for hours. Their service is particularly useful during peak tax season when wait times can be 2+ hours. They're not doing anything you couldn't do yourself - they're just taking the waiting part off your plate. Think of it like a restaurant buzzer that lets you do other things until your table is ready, instead of standing in the lobby for hours.

Do those suspended losses get adjusted for inflation over time? Seems unfair if you have to wait years to claim them and they're worth less by then.

No, unfortunately suspended passive losses don't get adjusted for inflation. They remain at their original dollar value regardless of how many years you carry them forward. It's definitely not ideal from a time-value-of-money perspective, which is why many investors try to create strategies to use them sooner rather than later.

I've had clients qualify as real estate professionals, but it's a high bar to clear. You need to spend 750+ hours per year in real estate activities (that's about 15 hours a week minimum) AND more time on real estate than any other professional activity. With your W2 jobs, that's nearly impossible unless one of you transitions to part-time employment or leaves your job entirely to focus on real estate. The IRS scrutinizes these claims carefully, so you need meticulous documentation of time spent.