Which taxpayers are subject to the Federal special allowance rules for rental real estate losses in California?

The Federal special allowance rules for rental real estate losses provide certain taxpayers the option to deduct losses from rental real estate against their ordinary income. This special provision is primarily applicable to those who are actively participating in real estate activities.

Taxpayers who actively participate have a significant level of involvement in the management or financial decisions regarding the rental property, such as making management decisions, arranging for maintenance, or approving new tenants. This active participation can lead to eligibility for the special allowance, allowing them to deduct up to $25,000 of rental real estate losses against other income, subject to certain income limitations.

Although there can be nuances based on individual circumstances, the core principle is that it is only those who are actively involved in real estate activities who can benefit from the special allowance rules. Other categories, such as those who own commercial properties or do not participate, do not qualify for the same treatment under these regulations.