Explain passive losses and future rental income

[Howie W.]

Over the years, I was able to buy two properties in different states (Florida and Virginia) that I converted to rentals (the beauty of being in the military and VA loans). Once I retired from the military, my income was over $150,000 (lots of military money is not taxed) and I could no longer deduct the passive losses for the two rental properties. This was 4 years ago. Florida property is positive cash flow each month, but I have over $27,000 in passive losses in the last 4 years. Mortgage will be paid off in 12 years. Virginia property is not positive cash flow and I take a small loss each month and I have over $75,000 is passive losses in the last 4 years. Mortgage will be paid off in 15 years. I have approximately $85,000 in equity in both properties ($170,000 combined) and they both appreciate each year since I purchased them. My questions are: 1. Once the properties are paid off, will the passive losses decrease? 2. Could I use the rental income on the properties (once the they are paid off) to offset the passive losses from previous years? 3. If so for #2, will the rental income be tax free until the passive losses are expended? Any feedback, recommendations, etc are welcome. Thanks.