Discussion Archives:Changing Passive to Active?

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Discussion Forum Index --> Tax Questions --> Changing Passive to Active?


JeremyTax (talk|edits) said:

25 April 2007
My client moved north to live in her rental, but stayed in an apartment close by for a month while the renters moved out. She took over management at the time she arrived, and managed it long enough to get one rent check before they left for her to move in. She also did repairs. How can I report both passive and active participation? Will carryover passive losses be taken this year if it became active, or do I still have to wait until the property is sold? Thanks.

Jeremy

Tstolley (talk|edits) said:

25 April 2007
I believe that the rental of real estate is always a passive activity, whether or not the manage it themselves. If losses are being limited you will still have to wait to take them when the property is sold.

T

Chautauqua (talk|edits) said:

25 April 2007
Or, if the client generates income from this passive activity, or from other passive activities, then the disallowed passive losses will be absorbed.

Klesher (talk|edits) said:

25 April 2007
what about the Special Allowance for Rental RE Activites?

Nshnider (talk|edits) said:

25 April 2007
even if it is passive income can the company take Section 179 on the equipment for the office like printers, etc. and if so how do you overide it on the Sch E because it comes up as passive on the Sch e and will not allow the 179

Neil

Death&Taxes (talk|edits) said:

25 April 2007
Maybe I am missing something, but if this woman had only this one rental property, how did she miss qualifying for the special 25,000 allowance for Active participation, aside from having too much income? Did she not approve the tenants? Did she not talk with the manager and approve the spending of monies?

San Diego (talk|edits) said:

25 April 2007
I agree with Death & Taxes, who said rental properties are always passive? That's just wrong.

Klesher (talk|edits) said:

25 April 2007
My point exactly!

Death&Taxes (talk|edits) said:

25 April 2007
Rentals are inherently passive, but Congress carved out the special exception of up to 25K of losses for those who participate actively and whose income is below certain levels. This test is not that stringent, and many long distance landlords find they qualify. My point and I think Klesher's is 'how did these passive unused losses build up?'

What I read in the original question is that suddenly the landlord became active for one month or so, but this will not free up prior losses, only those losses for that period. My problem, and the others too, is why weren't past losses considered active participation. Perhaps she was overseas away from the telephone, yet I have clients in London for many years who take an active part in managing their property in Philadelphia. They've changed rental agents, approved repairs etc.

JeremyTax (talk|edits) said:

25 April 2007
Last year it was reported as passive by the prior tax preparer. In my reading of "active vs passive" I concluded that she was passive, because the management company did so much for her. She did approve tenants and repairs, but I did not understand that it would qualify as a 25K loss exception. Thank you all so much for this info. I will look up the income limitations, go back to last year and ammend where her preparer forgot to depreciate the property, and take the 25K for both years. Can you take it more than once? I will do the research. Thanks!!!!!!

Death&Taxes (talk|edits) said:

25 April 2007
If you can, Jeremy, find the Committee Reports for when passive losses came into law in 1987. I think you will be surprised at what Congress intended with the active participation. I have a publication of those reports, but I also think Riley or someone can guide you there. You should not simply our word for it!!!!

Frussocpa (talk|edits) said:

27 June 2007
No one has addressed the real estate professional exception and the election that can be made under Sec 469.

Kevinh5 (talk|edits) said:

27 June 2007
Why bring it up if it isn't applicable in this situation? We weren't given any info that the taxpayer was a RE professional or that she had other passive activities to aggregate with.

Oh, and Nshnider, NO to the 179 deduction.

The issue in the original question by Jeremy was that she didn't actively participate in the (by law) passive activity of real estate rental. He is confusing passive activity with active participation. They are not opposites, they could both apply.

LILY (talk|edits) said:

27 June 2007
Kevin is correct. Rental properties are passive activities in which you either materially or actively participate. No sec 179 allowd for rental activities.
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