Discussion:Rental - Suspended Passive Activity Loss
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IdaPlanner (talk|edits) said: | 10 September 2007 |
| Hi -
I understand that the passive active loss rules for rental property allow up to $25k of passive losses to be used to offset portfolio or active income. This deduction is phased out 50 cents for each dollar over $100k AGI if you're MFJ. Any additional passive loss is suspended and carried over. The question I have is if the owner's income drops in a year where he has suspended PAL's from previous years so that he's now below the $100k threshold, can he: 1) Use the PAL for the current year up to $25k to offset active income - I already know this answer is yes. 2) Use a portion of the suspended PAL from previous years up to 25k minus the current year PAL to offset active income (i.e. can he use the suspended losses this year as long as he stays below 25k overall?). 3) If he has no active income this year, does this year's PAL get lost or simply suspended and carried over as if his active income was over $150k? 4) If he has no active income this year, do previous year's suspended PALs get lost or just continue to carry over? Thanks to anyone who can help. | |
| 11 September 2007 | |
| I don't quite understand your questions. But since no one else responded yet, I'll take a stab. 2) Assuming the taxpayer actively participated in the prior years when the suspended PALs were generated and continued to actively participate in the current year w/ respect to the those same activities, then suspended PALs can be used for purposes of the special $25,000 allowance against non-passive income. 3) & 4) My guess is that the excess current and prior PALs will be suspended and carried over to years in which s/he has passive income or otherwise qualifies for the special allowance. | |
| 11 September 2007 | |
| Your terminology is incorrect. Differ classifications exist between income for real estate operations resulting in classifying the activity as passive, active or material participating. When an activity is disposed of, any prior suspended losses would be released. See IRC 469. By the way, the incorrect classification of real estate activities is one of the hot areas for review by the IRS. Have fun. This is a great segment of specialization in the tax preparation field. | |
| 11 September 2007 | |
| Hi 3)& 4) if an actively participated passive loss is dedcutible in the current year due to income being below $100k it may put a taxpayer into an NOL and can be carried back/forward under those rules. If not it will be "lost". It is not suspended again. bye | |
| 22 April 2008 | |
| Do prior year unallowed losses from a passive activity have anything to do with the deduction of up to $25,000 loss from a rental real estate activity?
Taxpayer has 2 rental activities. One has a small profit, the other a small loss. Active participation and AGI <$100K. He also has a prior year suspended loss from a K-1 activity. The loss from the rental is being limited, and I can't figure out why. Am on phone w/ support and they don't know why either. In playing with my program, I find that if I take off the prior suspended loss, then the r/e loss is not limited. Am I missing a rule on the exception for rental real estate losses? Any input would be greatly appreciated. | |
Death&Taxes (talk|edits) said: | 22 April 2008 |
| Run thru the questions the software should give you. Start with the 8582....are those losses shown as those from actively managed property? If not, this would mean they were misnamed in the past and are considered from passive activities that do not take the 25K allowance.
While you are on the 8582 check the computation of Modified Adjusted Gross Income. Check how you have answered questions about this year's activities: are they actively managed not just in your mind, but in letting the software apply the rules. Software does not replace the human mind, but this late in tax season it would be totally surprising if the error were the software company. | |
Southparkcpa (talk|edits) said: | 23 April 2008 |
| For those of us on ProSeries for many years, it used to be simply Turbo Tax Pro from Chipsoft. What DT is saying is what we said 20 years ago. "When in doubt, Turby's right!!!" Referring to Turbotax, the professional version. | |
| 23 April 2008 | |
| Thanks.
Seems to be the prior year unallowed (suspended) losses from a K-1 that are triggering the disallowance of the rental loss. Agree that the software is probably right, (ProSeries Pro) however, I don't understand why, and thought maybe there was an exception to the exception that I am not aware of. When I take out the p/y suspended loss, the rental loss is allowed. Have checked mod AGI - %77K so okay. Customer service @ ProSeries has my tax return numbers, and they come up with the same answer. Said they think it is right, but have assigned a case to the tax dept and I should hear tomorrow. Will try again tomorrow to follow the numbers through the tax return. Right now they don't make sense to me. Have had r/e loss disallowed before for AGI, but can't find a reason for it to be disallowed in this case. | |
| 23 April 2008 | |
| OK, Here is what I have found out.
Passive losses from more than one activity are prorated. Therefore, the rental loss is allowed in full, it just doesn't look like it. In essence, part of the rental loss is disallowed and carried forward as a suspended loss. The other activities' suspended loss is decreased by the same amount that the suspended rental loss is increased. Still doesn't make sense to me, but the actual income from 07 passive activities is equal to the 1040 passive loss allowed plus the reduction in the total suspended loss carryforward. Hope all that makes sense. | |
Death&Taxes (talk|edits) said: | 23 April 2008 |
| Of course, that is the way it was done when we did it with pen and ink in 1987 or so. I used to pencil in mysterious numbers at the top of each column which were multipliers or were they multiplicans.....I can't remember, but I do remember the principal is to spread the losses over all the properties.....you couldn't simply use one worksheet but had to do all five. Funny but where I worked, with three preparers, often I was brought these to do for the others.....not because I was briliant at math but because I was low man on the totem. | |
| 23 April 2008 | |
| Low man on the totem is how I feel right now. Understand the rules, but what is the purpose? I now get to carryforward a loss that was actually fully allowed.
I do wish the people who write the tax code were required to prepare their own returns (by hand). | |
| April 24, 2008 | |
| Actually, by relying on my software, I saved all the time and headaches Pierce spent trying to figure it out...... | |
| 24 April 2008 | |
| woe is he who thinks Turbo Tax/Proseries/even Lacerte is always correct | |
Death&Taxes (talk|edits) said: | 24 April 2008 |
| It is hard to describe what went on in the early 80s when Congress gave us 15 year life for real estate, then 18, then 19. Interest rates were high, but those who could bulked up on rentals, reducing ordinary income with legitimate losses. One client had 27 townhouses in Philadelphia's Northeast, taking his income down.
Suddenly it was 1987 and the passive loss rules came on the scene, and while perhaps today it makes little sense to reach back and use up unused losses, then it did. Sometimes I think the passage of the passive loss rules forced someone to invent Excel, Lotus, Quattro Pro. | |
