Part 2 Farmers and Rental Real Estate question: self-employed real estate broker

Part 2Farmers and Rental Real Estate

Mara works 1,200 hours a year as a self-employed real estate broker (all her personal services) and 600 hours managing her 3 rentals, and elects to aggregate them. How are her rental losses treated?

A As nonpassive losses deductible against her other income
B As passive losses with no allowance because her income is high
C As capital losses limited to $3,000
D As passive losses limited to $25,000

Show the answer and explanation

Answer: A. As nonpassive losses deductible against her other income

As a real estate agent she performs more than half of her services and over 750 hours in real property trades or businesses in which she materially participates, so she is a real estate professional. With the election to treat all rentals as one activity and 600 hours of participation (over 500), the rental activity is nonpassive and losses are fully deductible, subject to basis, at-risk and excess business loss limits. Source: IRC 469(c)(7); Treas. Reg. 1.469-9(g); Pub. 925 (2025). Tax year: 2025 (law as of 31 Dec 2025).

Common mistake

Applying the $25,000 allowance to a qualifying real estate professional.

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Original study material mapped to the public IRS SEE content outlines; not a real exam question.Not affiliated with or endorsed by the IRS or PSI. Verify figures and rules against current guidance before relying on them.