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jgordosea
jgordosea, Enrolled Agent
Category: Financial Software
Satisfied Customers: 3013
Experience:  Three years as Expert support for Turbotax Ask a Tax Expert, Quickbooks support and use >6 yrs
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This question is for the 2011 Federal Tax Return.I havent

Resolved Question:

This question is for the 2011 Federal Tax Return.

I haven't filed my 2011 tax returns because of an issue that I've been unable to resolve. The IRS recently wrote to me and asked for the return.

The problem has to do with rental real estate losses that I can't figure out how to deduct.

I had similar net losses on a rental property in 2010 and 2011.
In 2010, the losses were all allowed. It made a big difference on my return.

The only thing that has changed for 2011 is that I got married in 2011. I'm filing separately, and I did not live with my wife for the entire year (we live apart for work).

I'm using Taxact as I do every year to file the return.
On Section E, the 2010 return deducts the entire amount of losses, but the 2011 return reports the losses as zero (0).

I traced this down to a form 8582. The form is auto-filled by Taxact. I see that the losses are itemized on the form in Part I. but then in Part II, Line 6 asks me to enter 150,000 or to see the form for Married Filing Separately. Taxact fills in 75,000 for this line. The next line (7) is my adjusted gross income. The adjusted gross income is more than 75k. Then it says that if the AGI is greater than the line above it (75k), then enter zero (0) on line 10. In other words, it seems that my losses are not deductible because my income is above 75K.

I don't have the form 8582 from 2010 to compare this to, but I assume the difference is that the Line 6 is probably 150,000. Anyway, I need to figure out how to get the losses from my rental property deducted like they were in 2010.

Any help appreciated.
Submitted: 1 year ago.
Category: Financial Software
Expert:  softwareassist.168 replied 1 year ago.
Welcome, THANK YOU for using Just Answer. My goal is to help make your life...a little...LESS taxing.

Q: Then it says that if the AGI is greater than the line above it (75k), then enter zero (0) on line 10. In other words, it seems that my losses are not deductible because my income is above 75K.

Is your income above $100K, are you a real estate professional?

A: If you're not a real estate professional, the basic rule is that taxpayers with modified AGI of $100,000 or less can deduct up to $25,000 in net losses from rental real estate activities in which they "actively participate." If you are married, you must file a joint return to take advantage of this deduction unless you lived apart from your spouse for the entire year; in that case, you can deduct up to $12,500 in losses on a separate tax return.
Customer: replied 1 year ago.

OK. Looks like you get what I'm talking about.


I'm not a real estate professional, my AGI is below 100,000, and i did "actively participate" and i didn't live in the rental house at all during the year.


And again, I did live apart from my spouse for the entire year, and i'm filing a separate tax return.


 


So everything applies. I should be able to claim up to $12,500 in losses, right?


I can't seem to make it happen on Taxact. I've checked the box for filing separately, and I've checked the box for "lived apart the entire year".


What do i have to do?

Expert:  softwareassist.168 replied 1 year ago.
Hello again Gary,

Based on the info that you provided, yes, you should be able to deduct the $12,500 in losses. However, as the issue appears to be how to enter the information in Tax Act, I will not be able to assist you with that part of the question. You would need to consult with an expert who is familiar with the Tax Act software. I am not familiar with the makeup of that software. I will request that your question be recategorized to the financial software category. Sorry that I am unable to assist you further.

Thank you again for using JUST ANSWER.
Expert:  jgordosea replied 1 year ago.

Greetings,

There is some confusion as to what is and is not allowed for married filing separately and not living with your spouse at any time during the year.
You had written: "Part II, Line 6 asks me to enter 150,000 or to see the form for Married Filing Separately. Taxact fills in 75,000 for this line. The next line (7) is my adjusted gross income. The adjusted gross income is more than 75k. Then it says that if the AGI is greater than the line above it (75k), then enter zero (0) on line 10. In other words, it seems that my losses are not deductible because my income is above 75K. "
That is consistent with the lines on the form:
5 Enter the smaller of the loss on line 1d or the loss on line 4 . . . .
6 Enter $150,000. If married filing separately, see instructions . .
7 Enter modified adjusted gross income, but not less than zero (see instructions) ...
Note: If line 7 is greater than or equal to line 6, skip lines 8 and 9,
enter -0- on line 10. Otherwise, go to line 8.
8 Subtract line 7 from line 6 . . .
When the amount on line 7 is more than the amount on line 6 there is no special allowance.
In your case when line 7 was more than 75K and line 6 is 75K the line 10 amount is zero.
This is consistent with the instructions for the form
"Modified adjusted gross income limitation. If your modified adjusted gross income (see the instructions for line 7, later) is $100,000 or less ($50,000 or less if married filing separately), your loss is deductible up to the amount of the maximum special allowance referred to in the preceding paragraph.

 

If your modified adjusted gross income is more than $100,000 ($50,000 if married filing separately) but less than $150,000 ($75,000 if married filing separately), your special allowance is limited to 50% of the difference between $150,000 ($75,000 if married filing separately) and your modified adjusted gross income.

Generally, if your modified adjusted gross income is $150,000 or more ($75,000 or more if married filing separately), there is no special allowance."

There does not seem to have been any problem with the software for 2011, but changing from filing single and getting the special allowance when your income was less than 150K in 2010 changed to not getting any special allowance when your income was more than 75K in 2011 due to the lower limit for married filing separately.

Sorry to say that there is no special allowance when modified adjusted gross income is more than $75,000 if married filing separately.

Of course, those losses not allowed are carried forward until they can be allowed or when the activity is fully disposed in a taxable transaction so all the loss will count, eventually.

Please ask if you need clarification or more information.

Thank you..

Customer: replied 1 year ago.

Just to follow up, if my income is never below 75k, then I'll never be able to deduct the loss, so carrying the loss forward will be meaningless, right?


 


 


 

Expert:  jgordosea replied 1 year ago.
Hello again,
No, the loss is still meaningful and will be deducted in full in the year that the activity is fully disposed in a taxable transaction.
Even if you do not get to deduct them prior to the year of sale the carry forward can accumulate and all be used when the property is disposed.

Please do file the 8582 each year to accumulate the losses.

Please continue to ask if you need more information.

Thank you.

jgordosea, Enrolled Agent
Satisfied Customers: 3013
Experience: Three years as Expert support for Turbotax Ask a Tax Expert, Quickbooks support and use >6 yrs
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