Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax
This answer was rated:

This is the fact pattern. The Client receives a K-1 from

This is the fact pattern...
This is the fact pattern.
The Client receives a K-1 from a jointly held business (50%) with a loss of $2,597.
The client has 2 schedule C businesses - one had a profit of $18,250, one showed a loss of $1,617 which nets to a profit of $16,633
The client has rental property. At year end 2010 there were suspended losses $35,023.
In 2011 there were losses of $33,382 and a profit of $5,233 - net $28,149 loss

The 1040 is correctly showing the gain from schedule c of $16,633
Line 17, rental gain and loss, is showing a loss of $43,250. I thought the maximum deduction was $25,000.

What am I missing?
Show More
Show Less
Ask Your Own Tax Question
Answered in 2 hours by:
9/2/2012
USTaxAdvising
Category: Tax
Satisfied Customers: 1,237
Experience: US Taxation specialist.
Verified

USTaxAdvising :

Hello,

USTaxAdvising :

You are correct that the maximum allowable loss is 25K for passive activities where the taxpayer is actively involved.

USTaxAdvising :

Perhaps you have coded, or the taxpayer is a real estate professional? If that is the case the rentals would not be considered passive but would non passive instead. (thus the limitation would not apply)

USTaxAdvising :

Perhaps you may have inadvertently coded one of the activities as disposed and thus all the losses are released?

USTaxAdvising :

based on the facts I don't see how you are getting an allowable loss of 43,250. - If the losses are from rental activities it should be limited to 25K.

USTaxAdvising :

I hope this helps, please let me know if you have any further questions.


 


Best regards,

JACUSTOMER-yfx9vnug- :

Thank you for your response. I have a follow up queston below.


 


The two schedule c businesses are considered passive income. They showed a profit of $18,350 and a loss Of $1,617 respectively for a net of $16,633. Since all items are passive would't you want to net lines 12 ($16,633) and 17 ($43,250) on the face of the 1040, not to exceed the $25,000 I limit..

Ask Your Own Tax Question

Hi Steve,

 

I don't know why your software is stating that a 43K loss is allowed.

 

The 25K loss allowance is only for rental real estate for which the taxpayer actively manages. It does not apply to every property but instead is used in aggregate. For example if the taxpayer has several rentals which he/she actively manages and all generate losses in excess of 25K separately only 25K is allowed, not 25K per property.

 

The 25K allowance does not apply to Schedule C activities.

 

I hope this helps. Please let me know if you have any further questions.

 

Best regards,

Ask Your Own Tax Question
Customer reply replied 5 years ago

If you net line lines 12 and 17 on the 1040 it equals the total of column C from worksheet 4 of the 8582, which is $24,543. Also, all activities are passive with no activity having "Material Actvity". What I am having trouble wrapping my arms arount is if you net the activities you are under the $25K passive loss write off. Maybe it is a software issue but the answer is correct, just split in two different places

The 25K loss allowance is only allowed for rental real estate where the taxpayers are actively participating. If the Schedule C is being used in the calculation of the 25K loss I would think that something is wrong with the calculation.

 

Having said that I generally I trust the software, it is smarter than I am most of the time. But when something doesn't seem right I go back and double check everything.

 

 

Ask Your Own Tax Question
Customer reply replied 5 years ago

I have spoken with the IRS and the tax department at my software vendor. The critical point is that the schedule "C" business is one in which the client does not materially participate. The lack of material participation makes the schedule "C" business a passive activity. This results in the reporting of the business income which is presented on the 1040 and the increased passive loss in much the same way a profitable property decreases the losses for all properties. However, because it is a schedule C the income needs to be reported as well but the net cannot exceed $25,000. Does that make sense to you?

Sorry it has taken me so long to get back to you. It has been a busy few days. Anyhow....

 

Does that make sense to you? - Somewhat yes. But it sounds like the total passive income is being netted together and then the 25K loss threshold is being applied to the rental real estate activity. I don't feel this is correct. You are allowed the 25K loss on the rentals then you can apply the other Sch C passive income. You have to order the rental loss first, apply the 25K loss threshold, then use the Schedule C to offset the loss.

 

I would expect the Sch E line 17 to be (25,000) and Sch C line 12 to be 16,633.

 

What software are you using? I have used ProSystem for a number of years and they do make mistakes. I found an error with their Form 8621 once before...

 

Sorry this is dragging but I believe something is wrong with the ordering application of the 25K loss.

 

 

 

 

USTaxAdvising
Category: Tax
Satisfied Customers: 1,237
Experience: US Taxation specialist.
Verified
USTaxAdvising and 87 other Tax Specialists are ready to help you
Ask your own question now
Ask USTaxAdvising Your Own Question
USTaxAdvising
USTaxAdvising
USTaxAdvising, CPA
Category: Tax
Satisfied Customers: 1,237
1,237 Satisfied Customers
Experience: US Taxation specialist.

USTaxAdvising is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,310 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,695 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
I am a physician and has some rental properties. I started
Good afternoon, I am a physician and has some rental properties. I started with one and now I have 4 of them. Since my income is above $150k I cannot deduct any loses and they are considered passive i… read more
abci168
abci168
Principal
27 satisfied customers
How to report cancellation of debt on rental property?
I received a 1099-C for my rental property that I held for over 1 year. According to the worksheet provided in IRS Publication 4681 I was insolvent just prior to the debt being canceled. My question i… read more
Dr Arthur Rubin
Dr Arthur Rubin
Doctoral Degree
24 satisfied customers
My question is about depreciation for rental property. My
Hello. My question is about depreciation for rental property. My rental property had no income during one year. In this case, since there was no income, I do not need to claim depreciation for that sa… read more
Fred Rook
Fred Rook
Corporate Controller
BSBA
32 satisfied customers
I got a 1099 A of a rental property with information on Box
I got a 1099 A of a rental property with information on Box 2 and Box 4 how do I report it on my tax… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I have a rental property that required major repairs this
I have a rental property that required major repairs this year. The repairs minus deductible were covered by my insurance. Is the entire amount of repair an allowable expense or only the insurance ded… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Are you familiar with Capital Gain taxes on rental property?
Are you familiar with Capital Gain taxes on rental property? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I recently received a car as a payment for rental property
Hi, I recently received a car as a payment for rental property and I was wondering how the tax treatment would be … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
If my Schedule E loss is disallowed for a rental property
If my Schedule E loss is disallowed for a rental property (due to income level), can I take the mortgage interest and real estate taxes paid on Schedule A instead of on Schedule E?The entire expense a… read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
736 satisfied customers
Can individual take residential rental property losses on
Can individual take residential rental property losses on their tax returns … read more
abci168
abci168
Principal
27 satisfied customers
I have a passive activity loss carryover from 2015. I sold
I have a passive activity loss carryover from 2015. I sold the rental in Jan 2016 and read in the instructions that if you dispossed of your entire interest in the passive activity you could claim the… read more
keeperumiami
keeperumiami
Sr Financial & Tax Consultant
Bachelor\u0027s Degree
1 satisfied customers
Disposition of Rental Property. Rental property: Gross sale
Disposition of Rental Property.Rental property : Gross sale price: $600K Cost or Other Basis plus Selling Expenses: $300K Depreciation allowed or allowable: $100K (Form 4797 line 22)Adjustment: $300K … read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
In Texas A & single females have several rental properties
In Texas A & B single females have several rental properties in joint tentancy with right of survivorship. The 1099 is under A's SSN. In 2015 rental income was filed under B's federal tax. IRS now all… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
I bought a new rental property. Can I get any tax deductions
I bought a new rental property. Can I get any tax deductions for the money I spend to buy the property? … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,490 satisfied customers
We are considering purchasing a rental property in Cape. My
we are considering purchasing a rental property in Cape Cod. My understanding to get the full tax advantage I am only allowed to stay in the property for 14 days. Is this the case even when the rental… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Can I write off (I would think Schedule C) my $2400 tax prep
Can I write off (I would think Schedule C) my $2400 tax prep fee. I am a "real estate professional" "active participation" and have about 30 rental properties, I own as a sole proprietor w/o dba or co… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,230 satisfied customers
Lev, Regarding NOL from rental property on the particular
good afternoon lev, Regarding NOL from rental property on the particular year for instance year 2013 which would reflect on 1040 line 17 , if the following year(2014) there is a passive loss from rent… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I would like to now about passive income reporting on form
I would like to now about passive income reporting on form 1099. Let's say I have a property managment company that manages my property. And for the month of December my property earns me$1000.00. In … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
I have a rental property, which is the only passive income I
I have a rental property, which is the only passive income I have. I am filling Schedule E to declare income and claim expenses on the property. The result is a (loss). Do I need to fill form 6198 or … read more
keeperumiami
keeperumiami
Sr Financial & Tax Consultant
Bachelor\u0027s Degree
1 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x