Active Participation Test

Investors sufficiently involved with their rental property to meet this test, and have income (See Modified Adjusted Gross Income) less than $150,000 can deduct some or all of the tax losses, up to $25,000, from their rental property against any income including wages (active income) and dividends and interest (portfolio income). The amount of this $25,000 loss allowance that can be used is reduced as your income exceeds $100,000, and is eliminated entirely when income reaches $150,000. To meet the active participation test, you must own at least 10 percent of the investment, make management-type decisions (approve new tenants, set rental rates, approve major repairs), and so forth.