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Yes, it is regarding rental real estate activities. There are 5 properties. First, line 11 on the FTB 3801 form comes to $26,315 allowable loss, which includes the $25,000 allowance and $1,315 passive gain. The only other income is $48 interest income. Yet every tax software I use automatically takes the full $25,000 loss and it is then lost and is not carried forward. Since there is no income to speak of to offset the losses, how do I calculate the true carryforward on the worksheets and not take the special allowance? Specifically the worksheets 3,4, and 5 on page 3 of the FTB 3801 and the CA adjustments worksheet on Page 2 of the FTB 3801. (Explain Worksheet 3 and I can do the 4 and 5.)
I really appreciate your help with this.
The tax software is doing the correct thing with respect to the 25K. If you use it and you don't have any taxable income then it does not get carried forward. It is gone. Like you mention you don't want to take the deduction because there is no benefit for you this year. It would be better to carry forward the full disallowed loss.
You state above "The Federal rules state that passive losses can only be taken to the extent of the passive income." - while this is correct the fed allows a 25K deduction from other income when you actively participate. I am assuming you are claiming the deduction on federal return which is why it is coming over to the CA return. Are you claiming the deduction on the federal return?
If yes then you would have to answer the questions in the tax software so that you are not actively participating. Thus you would not get the 25K deduction federally. You can't say that you were active for federal and not active for CA....
For Federal, I am a real estate professional. As I understand it, I do not have to file a schedule C and choose not to. Everything is on the schedule E. Since I am a Real Estate Professional, I claim a net operating loss and carry forward the balance each year until my gains and income are greater than my NOL.
Does this mean that I must take the $25,000 special allowance and thus lose that much of my loss every year even if my gains do not fully offset it?
Thanks for the clarification.
The only other thing I need to know what do I need to do to properly report when I have sold a property with an unrecovered loss?
Thank you so much!