Accepted Answer

.Sorry for the delay....had to leave for a while.

You are a real estate professional if you meet the following criteria:

• More than half of the personal services you perform in all trades or businesses during the tax year are performed in real property trades or businesses in which you materially participate.

• You perform more than 750 hours of services during the tax year in real property trades or businesses in which you materially participate.

Then this would be filed as a business on Form 1040 (Schedule C) Profit/Loss from a business., and you would be subject to 15% Self Employment tax on the net profit if greater than $400.

It doesn't sound like this would be your situation. You will be unable to claim the loss this year, but you will be able to carry it (and any future losses that you can't claim because of the AGI limitaion ) You handle this by first filing Form 1040 (Schedule E) Supplemental Income and Loss Be sure you take every deduction you would normally be allowed against your rental income as listed in the pub 527 referenced earlier. You will want all allowed losses to carry forward for a time that you can use them. You never really totally lose these losses. If you have not been able to take them in the years they occurred, you may always take them in full in the year when you sell the rental home.

Since you can't take the loss, you will need to file Form 8582Passive Activity Loss Limitations, as part of your Federal 1040 personal tax return.

You will need to start with Section II, Special Allowance for Rental Real Estate Activities with Active Participation.

Instructions for Form 8582

I've included the instructions, but I strongly suggest that you find an Enrolled Agent , CPA, or tax professional familiar with this form to help walk you thru it at least the first time. It can be a little tricky, but its how you preserve you rental losses for future years.

I hope this helps.

Edited by Anne on 9/30/2009 at 3:54 PM

Expert:	Anne
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Answered:	9/30/2009

Master Tax Preparer

Enrolled Agent with 20 Years Experience specializing Individual and Small Businesses