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Group Self-Rental Property with Business

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Level 2
How do I  group Rental Property that's a Self-Rental to the Business on Sch C that's renting it? Under Sec. 469 this is allowed to group rental with other activities so Self-Rental losses are not wasted.
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Level 12

You need to remember that §469 is about Passive Activities, including passive businesses.  So yes, if BOTH are passive activities, yes, they could be grouped.

However, "runs his own law firm" seems quite unlikely to be passive.  Assuming that is the case, you can't group them.

 

Even if it were to be passive, it would not get the results you are wanting.  Actually, it would get the opposite of what you want. 

If they were both passive, you could already use the passive loss of the rental against the passive business income.  The purpose of the "grouping" is to achieve Material Participation, which would make the business NON-passive.

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Level 15

I assume you have marked each property as a self rental. Here is the help screen for that from Lacerte:

"

This is a mandatory entry for each rental and royalty property. You can press [Ctrl]+[T] and select the type of property. For a property type that isn’t on the list, make an entry in “Other type of property” (Screen 18, code 803).

Selecting “Self-Rental” or “Land” will trigger the recharacterization of passive income rules. Under these rules, a net loss for the activity will be treated as a passive loss, while net income for the activity will be treated as nonpassive income. See IRS Publication 925, Passive Activity and At-Risk Rules, for further information."

I don't know that further grouping is necessary, but you can use Aggregate business number in the QBI section down near the bottom. Just pick a random  number and enter that number for each of the properties you want to group. Here is the help screen from Lacerte:

"Enter a number to aggregate two or more businesses. All businesses with the same number will be aggregated together.

NOTE: SSTBs may not be aggregated. See Publication 535 for more information."

@IntuitAustin  Any chance this type of F1 help screen might ever make it's way into PTO?

 


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Level 12

@sl19 wrote:
How do I  group Rental Property that's a Self-Rental to the Business on Sch C that's renting it? Under Sec. 469 this is allowed to group rental with other activities so Self-Rental losses are not wasted.

 

I agree with George.  I'm not aware of any grouping that is necessary for a self-rental.  Can you clarify your comment about the "losses are not wasted"?  As was pointed out, they will be passive losses, and if they can't be used they will be carried forward.

If our comments aren't what you are looking for, maybe you can give more details about what you are trying to do and what §469 provision you are trying to use.

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Hey George, 

I don't think an F1 Help Screen is currently on the product road map for PTO, but I will suggest it to our product managers and follow up here if I receive any feedback. 


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Level 2

Thank you for replies.

I am reading Section 469 and it sounds like you can group your Active business Income on Schedule C with your Self-Rental on Schedule E if both are 100% owned by you and constitute an "appropriate economic unit."  So if Grouped, the losses on the Self-rental will be netted with Active Income. They are in separate LLC's, but sounds like they can be grouped.  

Is this not accurate?  And doesn't seem like the Grouping feature in ProConnect can make this happen?

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Level 12

The grouping in §469 is among Passive Activities and is for the purpose of achieving Material Participation.

Is the Schedule C business "Passive" where the taxpayer does not Materially Participate?  If not, the grouping does not apply.

Even if it is (which is quite unusual), I suspect that you still won't be be achieving what you want.  

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Level 2

Yes, so in my clients situation, he runs his own law firm as LLC on Schedule C.  He just purchased an office building, and his law firm pays rent to the new Office he owns in a separate LLC.   I understand the self-rental rules and limitation of losses, but I was looking to see if possibly he could group the 2 LLC's together, the Self-Rental and Law firm so he can recognize the depreciation and the rest of the rental expenses that does create a loss.  

Looking at the code https://www.law.cornell.edu/cfr/text/26/1.469-4  under (d) and the grocery store example under (ii), seems to me this grouping can be done.

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Level 12

You need to remember that §469 is about Passive Activities, including passive businesses.  So yes, if BOTH are passive activities, yes, they could be grouped.

However, "runs his own law firm" seems quite unlikely to be passive.  Assuming that is the case, you can't group them.

 

Even if it were to be passive, it would not get the results you are wanting.  Actually, it would get the opposite of what you want. 

If they were both passive, you could already use the passive loss of the rental against the passive business income.  The purpose of the "grouping" is to achieve Material Participation, which would make the business NON-passive.

View solution in original post

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Level 2

yea, law firm currently NOT passive, although that's his end goal.  So sounds like §469 not even applicable in current situation.  I was doing research trying to figure a way to use the Office Building loss.  I was assuming or hoping the"trade or business" part of the grouping examples I was reading were not passive for some reason, but that doesn't make sense within 469. 

Appreciate your very helpful feedback. 

I guess his rent will be going up... Thanks.

 

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Level 2

TaxGuyBill,

Are you an employee of Intuit?  Seem too tax knowledgeable.

Shaun

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Level 15

Bill is not an employee of Intuit. He is a tax practitioner who volunteers here. Yes he is very knowledgeable.


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