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Old 02-04-2014, 07:31 PM
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Income exceeds $150,000. Why doesn't Turbotax offset passive losses from one rental property against passive income from second rental property?

My combined income exceeds $150,000. I own one rental property which showed passive losses of $8,000 (couldn't rent the house for several months). I also own a second rental property which had passive income of $9,000. I am an "active participant" in both rentals, but not a "material participant" (i.e. not a real estate professional).

Turbotax computes on Form 1040 that I have $9,000 in rental income and I get taxed on this. While I know that I can't apply any passive losses against ordinary income, why doesn't Turbotax apply the passive losses of $8,000 against the passive income of $9,000, leaving me with net passive income of $1,000 (which I believe is the correct amount that should be indicated on my Form 1040).

In other words, am I incorrect in stating that PASSIVE LOSSES should always offset other PASSIVE INCOME, and that active participation and income levels come into play only when determining whether up to $25,000 in PASSIVE LOSSES can offset ORDINARY INCOME?

If I am wrong, can someone please explain to help me understand. Thanks in advance for any input on this.



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Old 02-04-2014, 10:36 PM
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Originally Posted by aboniadi View Post



#1;My combined income exceeds $150,000. I own one rental property which showed passive losses of $8,000 (couldn't rent the house for several months). I also own a second rental property which had passive income of $9,000. I am an "active participant" in both rentals, but not a "material participant" (i.e. not a real estate professional).

#2;Turbotax computes on Form 1040 that I have $9,000 in rental income and I get taxed on this. While I know that I can't apply any passive losses against ordinary income, why doesn't Turbotax apply the passive losses of $8,000 against the passive income of $9,000, leaving me with net passive income of $1,000 (which I believe is the correct amount that should be indicated on my Form 1040).


#3;In other words, am I incorrect in stating that PASSIVE LOSSES should always offset other PASSIVE INCOME, and that active participation and income levels come into play only when determining whether up to $25,000 in PASSIVE LOSSES can offset ORDINARY INCOME?

If I am wrong, can someone please explain to help me understand. Thanks in advance for any input on this.
#1;UNLESS you are a r/e pro or a dealer, even if you are a material participant or active participant, your rental income is still passive income not ordinary income.

#2; I guess you need to contact the software vendor for tech support on your issue.,

#3;Correct; as you said, PL can only be used to offset other PL income .Any unused PL carry forward until either the activity is disposed of(aslongas the holder’s whole interest in the pty is disposed of , then the basis o f the pty on sale is increased by the amount of the PL c/f; if there is no gain to offset or not to choose to increase the basis then the PL c/f ‘d be lost), or passive gains arise to be offset.Unfortunately, since passive income does not include portfolio income, passive losses cannot be used to offset this income. Your passive losses will just have to roll forward (without even so much as interest paid). Because depreciation is a "paper" expense, inclusion of it in rental expenses usually generates a rental loss on paper. In general, rental losses are not allowed to taxpayers. Rather, accumulated losses "roll over" to the next year. They are only used when:there are sufficient rental profits to use up the "bank" of accumulated losses, or the property is sold, in which case unused losses are immediately realized ass aid above.



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Old 02-05-2014, 08:45 PM
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It should offset each other, sounds like the two are not aware of each other.
Do both of them belong to your personally or are both (or one) of them in an LLC or other entity?



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Old 03-16-2014, 08:53 AM
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Quote:
Originally Posted by aboniadi View Post
My combined income exceeds $150,000. I own one rental property which showed passive losses of $8,000 (couldn't rent the house for several months). I also own a second rental property which had passive income of $9,000. I am an "active participant" in both rentals, but not a "material participant" (i.e. not a real estate professional).

Turbotax computes on Form 1040 that I have $9,000 in rental income and I get taxed on this. While I know that I can't apply any passive losses against ordinary income, why doesn't Turbotax apply the passive losses of $8,000 against the passive income of $9,000, leaving me with net passive income of $1,000 (which I believe is the correct amount that should be indicated on my Form 1040).

In other words, am I incorrect in stating that PASSIVE LOSSES should always offset other PASSIVE INCOME, and that active participation and income levels come into play only when determining whether up to $25,000 in PASSIVE LOSSES can offset ORDINARY INCOME?

If I am wrong, can someone please explain to help me understand. Thanks in advance for any input on this.
If you or your spouse actively participated (NOT Real Estate Pro) in a passive rental real estate activity, you can deduct up to $25,000 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 $25,000 of nonpassive income after taking into account any losses allowed under this exception.

If your modified adjusted gross income is more than $100,000 (more than $50,000 if married filing separately), this special allowance is limited to 50% of the difference between $150,000 ($75,000 if married filing separately) and your modified adjusted gross income. This allowance is then completely phased out for income over $150,000.

Since you're income is over the maximum limit for non real estate professionals, you are not allowed any deduction. This loss can be carryover to other years. So TurboTax is correct. I hope you've already had this figured out.



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Old 03-17-2014, 02:15 AM
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REPOST;

My combined income exceeds $150,000. I own one rental property which showed passive losses of $8,000 (couldn't rent the house for several months). I also own a second rental property which had passive income of $9,000. I am an "active participant" in both rentals, but not a "material participant" (i.e. not a real estate professional). ===========>>>>>>>>>>>>>>Correct;passive activities such a rentals /investment partnerships have a loss limit of $25K in offsetting non-passive income such as W-2 wages or other earnings. And it is reduced $1 for every $2 over $100K in AGI. Any disallowed passive loss is carried forward until you dispose of the property . For example, you make $120K at your regular job and have $30K in rental losses. Your passive loss deduction is $15K ($25K minus $10K) and the remaining $15K is carried forward.

Turbotax computes on Form 1040 that I have $9,000 in rental income and I get taxed on this. While I know that I can't apply any passive losses against ordinary income, why doesn't Turbotax apply the passive losses of $8,000 against the passive income of $9,000, leaving me with net passive income of $1,000 (which I believe is the correct amount that should be indicated on my Form 1040). ==============>>>>>>>>>>I guess you need some tech support/advice on the issue for sure. Please contact the vendor and explain the situation.

In other words, am I incorrect in stating that PASSIVE LOSSES should always offset other PASSIVE INCOME, and that active participation and income levels come into play only when determining whether up to $25,000 in PASSIVE LOSSES can offset ORDINARY INCOME? ==============>>>>>>>>>Correct. So active participation only matters for those taxpayers who are not limited on their passive losses. In other words, if you do not exceed the passive loss limits you only need to demonstrate active participation. However, to avoid the passive loss limitations of $25K, you must be considered a real estate professional who also materially participates in the rental activity. When you make money through rental property rents, it is generally considered passive income. It arises more out of the property itself than a service you are providing. If you lose money, it's a passive income loss or, simply, passive loss. A gain is taxed as ordinary income. How a loss is handled depends on whether you actively participated in the rental activities.If you did not actively participate in the rental business, you may only deduct passive losses from passive gains, such as from other rental property. If you do not have passive gains, you can carry the passive loss backward or forward to other tax years in which you do have passive gains to offset. If you did actively participate, you are able to deduct up to $25K in passive loss from non-passive income, such as wages from your job.



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