Internal Revenue Service United States Department of the Treasury
Level Basic Advanced Military International

Schedules K-1 and Rental Income Workout

Rental Loss

Case Study 1: Passive Income vs. Active Participation

Sally Jenkins, a U.S. citizen, lives in Europe and has wages paid by the U.S. government of $25,000 and interest income of $100. She rented out her U.S. home and incurred $1,000 in rental loss for the tax year.

Although her sister collects the rent, Sally makes all of the bottom-line decisions as to whom, and for what amount, the property will be rented. While Sally is in Europe, she pays her sister to manage the property.

Can Sally's rental loss of $1,000 be offset as a deduction against her gross income of $25,100?

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