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Your post shows me how much I don't know (but need to know) about this.

Generally, rental activities are passive activities automatically. For real estate professional electing to be treated as such, rental activities are not automatially passive, but the classification then reverts to the generaly tests for material participation.

When you do that, each rental property is a separate activity UNLESS you make a separate election to aggregate (classify) all your rental properties as a single activity, which would be nonpassive. And you probably do need to make the election, otherwise you don't get material participation at the 500 hour level.

I think I'm OK on the first paragraph (reading something like "generally applicable tests for material participation" as the last part of it).

In the second paragraph, you mention making an election. I suppose this election is really just the single question on the back of a Schedule E. (Yes?) And that "election" is something that can change from year to year ...

I thought that one of the big differences that that election/question makes is that any losses needn't be capped at 25k.

Then comes:

You don't report it any differently on the Schedule E until you get down to the net loss number, really. You wouldn't do Form 8582 except for deferred losses (PALs)from prior years. That's another issue, if you have those. Those can be carried over against future passive income, INCLUDING a gain from a property treated as a passive activity.

By contrast, aggregating your properties as a single activity, you never dispose of the activity, until you've sold the last property.
But if they weren't passive, and you don't have PALs, I don't see the problem there either.

Are you now talking about that question on the back of Schedule E? As for adding up the pluses and minuses from all the properties, this is ALWAYS done, isn't it? (When you speak of aggregating, do you mean adding the pluses and minuses together?) What's Form 8582? What are PALs?

DW is a real estate professional (and passes the material participation test), so I suppose we have no such things as PALs (which is probably one reason why I don't know about them).

But then I don't think I get the last part, about having PAL carryovers that could be used to offset gains from the sale of a rental property.

TIA for any help.

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