Originally Posted by Jlee
I have a somewhat confusing issue I hope someone can help.
I personally rehabilitated a historic building (now used commercially) that generated rehab credits in 2010, and is held under an LLC.
I rent part of the building for special event hosting (a small side-business in which I do all the work), all through the LLC.
I have a few offices for rent, but no takers as of yet. I am not a real estate professional, and this is my only property.
I also own a single member S-Crop and I pay rent to the LLC for office space in two rooms. I work here every day. I still show a loss, so its passive under the self-rental rules.
I'ts been recommended that I rent substantially more of the building in order to show a non-passive income (self-rental), which would allow unlimited use of the tax credits.
I've seen IRS text stating that "credits are not limited on active projects" (i.e. "John is an architect" example in circumstances where RTC is not limited).
But I've read the Siddell v Commissioner case and it seems to contradict this, although that case is fairly complex but frequently cited.
In general, rental real estate activities are generally considered passive activities, and the amount of loss you can deduct is limited. Generally, you cannot deduct losses from rental real estate activities unless you have income from other passive activities. However, you may be able to deduct rental losses without regard to whether you have income from other passive activities if you "materially" or "actively" participated in your rental activity; losses from passive activities are first subject to the at-risk rules. At-risk rules limit the amount of deductible losses from holding most real property placed in service after 1986.However, If your rental losses are less than $25K, and you actively participated in the rental activity, the passive activity limits probably do not apply to you. The at-risk rules place a limit on the amount you can deduct as losses from activities often described as tax shelters. Losses from holding real property (other than mineral property) placed in service before 1987 are not subject to the at-risk rules. In general, all rental activities (except those meeting the exception for real estate professionals, above) are passive activities. For this purpose, a rental activity is an activity from which you receive income mainly for the use of tangible property, rather than for services.Deductions for losses from passive activities are limited. You generally cannot offset income, other than passive income, with losses from passive activities. Nor can you offset taxes on income, other than passive income, with credits resulting from passive activities. Any excess loss or credit is carried forward to the next tax year. If you or your spouse actively participated in a passive rental real estate activity, you can deduct up to $25K of loss from the activity from your nonpassive income. This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. Similarly, you can offset credits from the activity against the tax on up to $25K of nonpassive income after taking into account any losses allowed under this exception. I guess y ou can contact the IRS for more info in detail on the issue,.