Discussion:Rental Income Loss and ProSeries

Passive losses are basic tax; you have checked all the right boxes. If income without the loss is over 150K, the loss is suspended.

I have the opposite problem with ProSeries. TP has a rental property and in addition to that a vacation home that is rented out most of the time (short term) and the vacation home rule applies. Her other income is less than $100k. Since there are previous and current year passive losses I was expected that she could deduct $25k, but instead it shows an allowed loss of $32k in line 17 of 1040. When I looked at the sch E worksheet, the line F (other passive exceptions) box is checked authomatically by ProSeries. It says that the program will authomatically check this box if vacation home limits apply. The material participation box is not checked.

I am puzzled by this. My client doesn't need the deduction over the $25k and I am thinking about overriding the check mark in box F. But I don't want to draw attention to the return either if that box should be checked. Also I may have problems when e-filing, maybe. Any insight or direction is welcome.

Thank you!

I duplicated your conditions and found that if you check material participation, your loss will be greater than 25K.

It doesn't make sense to me, but the program did that authomatically. Is ProSeries right? Or should I force the Other Passive Exception box off?

Is there any chance the real estate professional block is checked on the information worksheet?

I am trully puzzled by this. The truth is that this property is an investment for my client. She goes there often to check it out and to prepare it for the next short term renter (is in Palm Springs) and in the meantime she spends a weekend relaxing there. But she is holding it until it goes up in value and then she will sell it.

What I can't understand is where in the software the taxpayer makes the election to aggregate the properties when he is a RE Pro....for when there are multiple properties it is often difficult to meet the qualifications for all of them.

I would bet if you check that block and are not a RE Pro it means nothing.

I want to clarify that the other rental has a net income of about $2k. The vacation home was used last year less than 10% of rental use (so it was considered a rental in 06) and had a big loss carryover. This year it has a loss too, but it cannot be deducted because of the vacation rental rule. Here is what I didn't know, and I hope ProSeries is doing it right (RILEY, WHERE ARE YOU????): because the vacation home is not considered a passive investment property, the $25k loss limit doesn't apply, so the program allows a bigger loss.

I don't want to draw attention to the return if I can help it.

What is the loss on the front page of the 1040; it should be 25K? A 2K profit from the rental property and a 27K loss from the carryover of the prior year.

Also, you can show a vacation home loss if the Section 163 & 164 deductions are high enough and the rental income is low enough. If I use 6000 of rent, 24000 of qualified interest and 12000 of real estate tax, and no other expenses, I arrive at a deductible rental loss of 8877 using the Tax Court rule with 90 days rented and 30 of personal use....naturally as the rental days rise, the percentage of the mortgage interest allocated to rental rises and the loss increases since these two expenses are always deductible from the rent under both the Tax Court rule and the IRS' holding.

But this loss has nothing to do with the allowance under the 25000 passive rules.....it simply adds to it. The NPA would be the rental loss allowed from the vacation property.

But the facts are the facts and you can't pussyfoot around it. The use of the prior year passive loss is permitted since there is passive income this year, and Modified AGI is under 100,000. The NPA is permitted since apparently the deductions under 163 & 164 are greater than the rent.

Even if you were to determine that the number of personal days was less than 15 [e.g., they were days spent repairing the property] you will only allow more rental loss. You could only avoid deducting that loss by claiming your client did not actively participate in the rental.....and believe me, once the loss is strictly passive, using it in the future is very difficult since the 25,000 rule does not apply.