If you earn over $150,000, rental losses normally can't offset your W-2 wages. But if you or your spouse qualifies as a real estate professional, those losses get reclassified and can reduce your taxable W-2 income instead.
For real estate professional, I guess we'll start the rules first, right? If you're someone of higher income, higher income means $150,000 or more of income in total. That means your rental losses, should you have any, from tax strategies are considered passive. If you have passive losses, it doesn't offset W-2 income. It only offsets other passive income. However, there's a loophole around that, which is the real estate professional loophole. What that means is if you or your spouse spouse is a real estate professional, then your rental losses doesn't just offset passive income, but it can also be used to offset W-2 income as well. And so that's the benefit.
