Discussion Archives:Avg Rental was 7 days now over, what about suspended loss?

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Discussion Forum Index --> Advanced Tax Questions --> Avg Rental was 7 days now over, what about suspended loss?


Discussion Forum Index --> Tax Questions --> Avg Rental was 7 days now over, what about suspended loss?

BPZTax (talk|edits) said:

27 February 2010
Client has a vacation rental property but in 2008 average rental was under 7 days so it's not a "rental activity" on Schedule E but a business on Schedule C [Reg. ยง 1.469-1T(e)(3)(ii)(A)] and material participation test applies (instead of active participation rule and $25,000 allowance). They don't meet material participation standard.

In 2009 fewer rentals but longer terms so average rental goes over 7 days and they do actively participate in the management decisions. Now I can get them the current loss (low enough AGI) but what about the suspended loss from 2008? Does it stay suspended because they didn't materially participate that year or does it get freed up because the property character has now changed to one where active participation is enough?

Section 280A vacation home limitation is not an issue.

RoyDaleOne (talk|edits) said:

27 February 2010
The activity is not deemed a rental and does not qualify for the $25,000 offset if:

The average period of customer use is 7 days or less; OR, The average period of customer use is 30 days or less and significant personal services are provided (such as maid service, cleaning services, etc.) If neither of the above apply, the taxpayer qualifies for the $25,000 offset, if active. If either of the above exceptions apply, the activity is not a rental activity. It is treated as a business , and the far more stringent material participation standard applies.

QUESTIONS to ask if rental period requirement is not met, and the taxpayer must materially participate:

"If the average period of customer use is more than 7 days, activity is generally a rental activity (IRC section 469(c)(2) & (4) and Reg. section 1.469-1T(e)(3)(i)), and losses are allowable only up to passive income from other activities."

If customer use is less than 7 days, the activity is still passive unless the taxpayer materially participates (IRC section 469(h) and Reg. section 1.469-5T(a)).


Conclusion the carryover loss is a passive loss carryover and is entered on Form 8582 as such.

http://www.irs.gov/businesses/small/article/0,,id=146318,00.html

All the answers are there, well kind of.

BPZTax (talk|edits) said:

28 February 2010
Thanks Roy. But it seems to fall between the cracks. It's over 7 days now and less than 30 but no maid service so not in the "hotel" section. So if "neither of the above apply, the taxpayer qualifies for the $25,000 offset, if active." My issue is what happens to the carryover loss from when either of the two above did apply and the circumstances change?

In year 1 it was less than 7 days so needed to be materially participating to get a loss off the 8582 and on to the 1040. Not doable. But in year 2 the average is over 7 days (lots of two week rentals) so it only has to be active participation which we do meet. So the loss in year 2 goes to the 1040 under the $25,000 rule. But the loss from year 1: still suspended (until passive income or property disposition) or now part of the same type of activity and allowed now?

In "form-speak", can I get a 2008 loss carryover on line 3c of the 2009 8582 to be allowed as a deduction in Part II of the 2009 8582 when the current year loss will go to line 1b?

RoyDaleOne (talk|edits) said:

28 February 2010
Sec. 1.469-1 General rules ----

B) The disallowed deductions or credits allocated to an activity under paragraph (f)(4)(i)(A) of this section shall be treated as deductions or credits from the activity for the succeeding taxable year.

Code Section 469(b)

Looking at an 2008 Form I would use Worksheet 1 Col(c).

BPZTax (talk|edits) said:

1 March 2010
"...shall be treated as deductions or credits from the activity for the succeeding taxable year."

Looks good to me!

Thanks a lot!

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