Discussion:Unwanted special allowance for rentals?

Want to show me how loss is trapped.

See the part about NOL down the page.

Yes, I played the blind man in a church presentation, so I am just repeat my lines.

If there were no active participation, the loss would not be deductible this year and could be held for the future.

Before someone asks "How did they live on $18,000?" do remember they could be retirees on Social Security and have bank interest, so that their taxable income would be comprised on interest and some taxable Social Security. And as I read the post, there was not a loss of 25K, but rather the poster knew they had the possibility of deducting up to 25K of a loss. It would be nice if we had actual numbers

If we bring the NOL carry-around info in this cite up to date it becomes "back two or three or four or five and/or forward 20 years, depending on elections made by certain taxpayers." Nothing gets simpler with time, not in the IRC world.

Body surfing this morning. Danger to life and limb. Big Nor'easter, huge waves. No PBR til after.

I think the question now is are we allowed to ignore using the up to $25K allowance if the loss would wind up giving little or no tax benefit because of the NOL calculations?

I've never looked into that question.

And the only way to ignore the 25K loss allowance is to claim lack of active participation, but this can be hard: "The difference between active participation and material participation is that the former can be satisfied without regular, continuous, and substantial involvement in operations, so long as the taxpayer participates, e.g. in the making of management decisions or arranging for others to provide services in a significant and bona fide sense." This is from the Committee Reports for TRA 86.

Obviously the taxpayer, if preparing his own return, can skate by this definition, but for professionals? It's not like back in the days of Section 1034 and the home office, where every person with a home office in prior years had lost exclusive use in the year the house was sold. Remember those days?

I read quickly through code section 469 and the related regs - don't see anything that calls this allowance elective.

Material participation is not the standard for rentals but rather for a trade or business. "...interests in rental activities are treated as passive whether or not the taxpayer materially participates." (IBID) Congress then went on to throw the taxpayer a bone with the active participation rule, setting the AGI limit that has not changed since 1987!!!!!!

Probably doesn't matter: your NOLD carryback would be 8971, assuming all Sch A is non-business deductions and the Capital gain is non-business. Compare this to the carryforward of the 18,000 loss, if possible. It's a no brainer to want to carry the loss forward. But if you file separately, the unused rental loss is passive, not active participation.

In addition, assuming the gain is long term, without the loss you would only pay SE tax since the 0 percent capital gain rate kicks in.

The taxpayer has to have lived with the spousal unit during the year to be allowed to use *zero* of this loss. Facts not in evidence...

From Section 469:

Married individuals filing separately  (A) In general Except as provided in subparagraph (B), in the case of any married individual filing a separate return, this subsection shall be applied by substituting - (i) "$12,500" for "$25,000" each place it appears, (ii) "$50,000" for "$100,000" in paragraph (3)(A), and (iii) "$100,000" for "$200,000" in paragraph (3)(B).

Taxpayers not living apart  This subsection shall not apply to a taxpayer who - (i) is a married individual filing a separate return for any taxable year, and (ii) does not live apart from his spouse at all times during such taxable year.

Well, if you don't have any, it probably doesn't matter what happens to them.

Now that we have real numbers, there is no mention of SS and that can be put to rest. As I said above, they would want to preserve the 18K loss over the smaller NOL carryback, but the ways to do so bring forth many disadvantages also.