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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28081
Experience:  Taxes, Immigration, Labor Relations
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I have a Canadian nonresident with W-2 income of approximately

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I have a Canadian nonresident with W-2 income of approximately $15,000. He has Schedule E rental losses but they are being disallowed.
He is filing as a married resident of Canada, to get the exemption for his spouse.
If I change his status to single, it allows the losses.

Why is the tax program disallowing this?

Lev :

Hi and welcome to our site!
If you or your spouse actively participated 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.
The special allowance is not available if you were married, lived with your spouse at any time during the year, and are filing a separate return.

Lev :

In additional - the maximum special allowance is limited based on AGI.Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance.


Thank you for the quick reply. I wasn't sure how that applied, as it is like they are filing married, to get the exemption, but are technically not, as only the taxpayer's income was reported, not the spouse.

Lev :

If the choose to file a joint tax return - income of both spouses must be reported - all worldwide income.


The MAGI is only $15,000. I found that wording in the Form 8582 instructions. So it is being treated as they are filing separately, but lived together. That makes more sense.

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