Can you take a loss on a self-rental?
Sarah Duran
Published Apr 10, 2026
Self-Rental Rule In a Nutshell The Internal Revenue Code (IRC) generally prohibits taxpayers from deducting passive activity losses (PALs). The self-rental rule in IRC Section 469 applies when you rent property to a business in which you or your spouse materially participates.
Why can’t I claim a loss on rental property?
Without passive income, your rental losses become suspended losses you can’t deduct until you have sufficient passive income in a future year or sell the property to an unrelated party. You may not be able to deduct such losses for years. In short, your rental losses will be useless without offsetting passive income.
How is a loss on a rental property treated?
Property rental losses are ‘relieved’ (used) against future property rental profits. Sadly, it isn’t possible to offset property rental losses against other income, for example a PAYE day-job, to obtain a tax repayment.
Who is the beneficial owner of a rental loss?
Rental losses are incurred and ‘booked’ to a person, and stay with that person. However, this does give rise to a useful tax-planning point: if property investors are buying high-yield property together, it makes sense wherever possible for any person with rental losses to be the ‘beneficial’ owner of that property.
Who is eligible for rental real estate loss allowance?
The rental real estate tax loss allowance is available only to property owners who actively participate in the management of the property. To meet the active participation test, the taxpayer must make management decisions for the property. 2 It is possible to meet the test even if the property is run by a management company.
Can a member of a partnership claim loss on rental income?
For example, if a customer has let property of his own and is a member of a partnership which has rental income, losses of his personal rental business cannot be set against his share of the partnership’s rental income. Profits of a current property business started after the one in which the loss arose has ceased.
