@Justin Brin
When discussing taxes, we need to use correct terminology, otherwise we risk misunderstanding.
There's only one kind of rental losses for tax purposes: net loss from operating a rental property. It is rent income minus all allowable deductions minus depreciation. You may think of it as paper loss, but this term is not helpful for taxes.
Such a loss is considered "passive" and can always offset passive income, and passive income only.
As you discovered, you cannot apply this passive loss against your NONpassive income unless your income is relatively low or you qualify for one of the exceptions.
So your options are:
A. Wait until some future event unlocks these losses, most commonly when one of your passive investments is sold or when your passive investments produce positive income even after all the deductions.
B. Try to qualify for one of the exceptions: Real Estate Professional or Short-term rentals. This may or may not be possible, depending on your situation.
C. Intentionally chase passive income, such as investing in a business that you do not operate - directly or through syndications.
D. Sell a property or another passive investment.
While options B,C,D may allow you to "cash" your losses, you could be shooting yourself in the foot. I've seen many investors getting themselves into lousy or risky businesses/investments while narrowly focusing on taxes.
Find the most profitable and least risky ways to deploy your money. If they happen to be tax advantageous - great. But don't lose the business perspective while chasing tax benefits.
