When passive loss can't be deducted, what type of income can offset it?

Thanks for explaining! So my software job is considered "active" income. That makes sense. About that $25,000 allowance - I'm at $95k for MAGI so should be eligible, right? What counts as "active participation" exactly? I do make all the decisions about the property, approve tenants, handle repair requests, etc., but I use a property management company for day-to-day stuff.

Yes, at $95k MAGI you should be eligible for the full $25,000 special allowance, which would cover your $7,300 loss. The "active participation" standard is fairly easy to meet - making management decisions like you described (approving tenants, setting rental terms, approving repairs) counts even if you use a property management company for the day-to-day operations. You don't need to personally mow the lawn or fix toilets! The key is that you retain decision-making authority rather than giving full control to someone else. Keep good records of your involvement in case of an audit. Just document emails, texts, or notes from calls with your property manager showing you're making the decisions.

Does taxr.ai actually have real CPAs reviewing your stuff or is it just an algorithm? I've been burned by "AI tax help" before that just gave generic advice anyone could Google.

I'm curious about this too. How much does it cost? And does it handle complicated situations like passive activity loss limitations across multiple properties? I have 3 rentals all in different stages and my tax guy seems to just plug numbers in without explaining anything.

They use a hybrid approach with AI analyzing everything first, but then tax professionals review the specifics of your situation. That's what made it so helpful - the technology identified potential issues in my documentation that a human might miss, but then I got actual professional guidance on how to fix them. For multi-property situations, it's actually really good. That's exactly what I have - 4 properties in different states with different levels of involvement. The system helped me track hours across properties to maximize what qualified toward material participation. I ended up changing how I logged my time which made a huge difference in what losses I could claim.

Wait, there's actually a way to talk to a real person at the IRS without waiting for 3 hours? How does that even work? Is this some kind of special access service?

Sounds too good to be true honestly. I tried calling the IRS three times last year about passive activity rules and gave up every time after 45+ minutes on hold. Why would they answer calls through this service when they don't answer their own phones?

It's not special access - they basically handle the waiting for you. When you call the IRS directly, you're stuck waiting on hold yourself. Claimyr's system waits on hold in your place and calls you when it reaches a real person. So the IRS doesn't know you're using a service - you're just in the same queue as everyone else, but you don't have to personally sit through the hold music. The reason it works is that their system can dial multiple IRS numbers simultaneously using the most efficient paths through the phone tree, and then connect you only when they get a human. It's completely changed how I deal with tax questions since I can actually get answers directly from the IRS now.

That's really good to know! So even if I can't deduct them all now, they're not wasted. Do these carry-forward losses show up somewhere on my tax return each year so I can keep track of them? Or do I need to maintain my own separate record?

Your tax software or accountant should keep track of them using Form 8582 (Passive Activity Loss Limitations) each year. The carried forward amounts should appear on that form year after year. But it's always smart to keep your own records too - I create a simple spreadsheet showing accumulated losses by property. The carried forward losses also follow special ordering rules when you finally get to use them. The current year's losses get used last, after all the prior year suspended losses. It can get complicated if you have multiple properties, so good record keeping is essential.

Be super careful with claiming real estate professional status! It's one of the most audited positions on tax returns. My brother tried claiming this while still working a 30hr/week job and got audited. IRS wanted DETAILED hour logs for the entire year showing exactly what real estate activities he performed each day. He couldn't produce them and ended up owing back taxes plus penalties.

That sounds interesting - I've never heard of a cost segregation study before. Does it require hiring a specialized company? And wouldn't creating bigger losses just mean more passive losses I can't use now anyway?

Yes, you'd hire a specialized engineering firm that does cost segregation studies. They typically cost $3,000-7,000 depending on property size and complexity, so it's only worth it for properties valued above ~$500k usually. You're right that creating bigger passive losses might not help immediately if you can't use them. But the time value of money makes accelerated depreciation valuable - deductions now are worth more than deductions 20 years from now. And if you're close to qualifying for the $25k allowance, or might have passive income in the future, or might sell in a few years, those increased losses could be valuable sooner rather than later.