Passive activity losses generally can only be used to offset passive activity income. However, in certain circumstances activities that would generally be considered passive activity may not be subject to the passive activity loss rules. One exception is related to an individual that is not in the rental real estate business but has a rental real estate activity. This taxpayer is permitted to deduct against other income up to $25,000 of passive rental real estate activities. However certain limitations apply.

A client indicates that he may be over the AGI limit in the coming year as a result of a bonus and fears he will lose his deduction related to his loss on rental property activity. What happens to the losses incurred by his rental property activity if he is over the AGI limit?

What will the taxpayer need to do to deduct the losses that were previously not allowed?

Does not state what his bonus amount was.