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Rental real estate: 2020 unallowed losses computations Schedule E and Form 8582.

TP owned 3 rental real estate in 3 different states, Rental #1 and #2 have net profits but rental #3 has a net loss as follows:

 

Carryover Loss to 2020 tax year

2020 Sch E Line 21

2020 Sch E Line 22-Deductible loss

F8582 WK#5 (a)

F8582 WK#5 (b) ratio

F8582 WK#5 (c) unallowed losses

F8582 WK#6(a) Loss

F8582 WK#6 (b)unallowed losses

Rental#1

 

$91

0

 

 

 

 

 

Rental#2

$63,640

$2,754

($2,789)

($60,886)

0.381042

($60,851)

($63,640)

($60,851)

Rental#3

$40,279

($58,623)

($56)

($98,902)

0.618958

($98,846)

($98,902)

($98,846)

Total

$103,919

 

($2,845)

($159,788)

 

($159,697)

($162,542)

($159,697)

 

 

F8582 WK#6 (c) allowed losses

Rental#1

 

Rental#2

($2,789)

Rental#3

($56)

Total

($2,845)

 

Why the deductible of Sch E Line 22-deductible loss/F8582 WK#6 (c) allowed losses is not as follows:

 

Sch E Line 22-Deductible loss

F8582 WK#6 (c) allowed losses

Rental#1

($91)

($91)

Rental#2

($2,754)

($2,754)

Rental#3

0

0

Total

($2,845)

($2,845)

 

Thank you for your time and comment.  Sorry for the numbers and tables!

 

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5 Replies 5
George4Tacks
Level 15

Short answer is because it would be wrong. 

Why would you think that a rental activity with positive income and no loss carryover would report a loss?  Why would you even want it to? There are specific instructions that come with the Form 8582.

For decades there was a woodworking show "New Yankee Workshop". I remember Norm Abrams saying "Be sure to read, understand and follow all the safety rules that come with your power tools. Knowing how to use your power tools PROPERLY will greatly reduce the risk of personal injury. ..." I truly believe Norm's words apply to our profession as well as they do to woodworking. 

BE SAFE

 


ex-AllStar
Accountant-Man
Level 11

I love Naum Aabrams!

** I'm still a champion... of the world! Even without The Lounge.

Think of it this way:

1.  PAL carryover becomes deductible upon either (a) disposal of the activity; or (b) there is PIG.

2.  In 2020, Rental 1 and 2 are PIGs; Rental 3 still has PAL.

3.  Rental 2's NET PIG income offset itself.

4.  Rental1's NET PIG income is to be allocated to offset the PAL from Rentals 2 and 3.

5.  The allocation of the NET PIG income is done based on the pro-rata ratio (Column a), which is computed based on the NET PAL effective for 2020 for Rental 2 and Rental 3.

6.  As a result:

Rental 1 still has as PIG income. 

Rental 2 uses its PIG income to offset its 2020 PIG net income (deductible = $2754) PLUS deductible PAL from its own carryover (deductible PAL from carryover of 35 - because Rental 1 PIG income makes it possible),  thus a total of 2789.

Rental has NO 2020 PIG income.  It shares its share of Rental 1's PIG income for  $56.

 

This would be how the instructions would read if PIG and PAL were converted to woodwork tools.

 

Hope this qualifies as your Halloween treat.  

 

Now, patiently waiting for Bob's trick....  LOL

@joshuabarksatlcs many thanks for your step-by-step guide and the Halloween treat!

Please allow me to go a step further by including my QBI calculations as per the following tables and numbers using the same fact as PAL:

 

Rental#1

Rental#2

Rental#3

Carryover Loss to 2020 tax year

Unadjusted QBI (Loss)

$91

$2,754

($58,623)

($103,919)

Negative QBI allocation: Rental#3

($1,875)

($56,748)

$58,623

 

Negative QBI allocation: 2019 Carryover

($3,324)

($100,595)

 

$103,919

Adjusted QBI

($5,108)

($154,589)

0

0

W-2 wages

0

0

0

0

UBIA of qualified property

$80,000

$80,000

$1,130,000

0

QBI deduction

0

0

0

0

 

Negative QBI allocation: Rental#3 and Negative QBI allocation: 2019 Carryover:  It is my understanding the negative QBI must be allocated among all of the positive QBI businesses in proportion to the positive QBI generated by each business.  Ratio: Rental #1 is $91/$2,845=0.0319859 and Rental #2 is $2,754/$2,845=0.9680141.

However. PTO: 2020 Form8995-A Line 2 QBI is $2,789.  PTO: 2020 Form8995-A Lines 3 and 16 is $558, which is 20% of $2,789.  

Why does PTO allow QBI deduction in the amount of $558 not zero QBI deduction as per the table above?

Please let me have your thoughts on this.  Again, many thanks for your time and comment!

Short answer:

 

REGARDING: It is my understanding the negative QBI must be allocated among all of the positive QBI businesses in proportion to the positive QBI generated by each business.

 

For Rental Three, the 2020 QBI loss was NOT $58,623.  Out of 58623, 58567 was disallowed due to PAL rules.  The allowed loss was -56

91 + 2754 + (-56) =   2789.

20% =  558.

That was the implication of pages and pages of the QBI rules.  If you go deeper, you would need to go over the regs. or at least the Form 8995 instructions, and you'd be on your own.