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Schedule E land rent

sstreit
Level 2

I'm working on a return with Schedule E land rent - taxpayer does not actively or materially participate.  There is rent income, real estate taxes and some insurance.  That's it.  It results in income (not a loss).  Proseries is defaulting to "nonpassive" for this income which will then not offset a passive loss from a K-1 on Sch E p. 2.  Last year, exact same situation and it was passive.  When I scroll all the way to the bottom of the Schedule E worksheet it clearly shows that it has nonpassive status and overriding that to "passive" does not change anything.  Any idea why it is doing this and how to fix it?

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Accepted Solutions
TaxGuyBill
Level 15

It is not a glitch, it is the law.

For land (and self-rentals), losses are passive and profits are nonpassive.

View solution in original post

4 Replies 4
dkh
Level 11

The taxpayer doesn't actively participate? ..... he doesn't collect rent, pay the property tax bill, pay the insurance,  make the rental agreement?  

sstreit
Level 2

Rental activities are considered passive by definition unless you are a real estate professional, which my client is not.  If I select code 5 at the top of the worksheet for land and have a loss, Proseries calculates that as a passive loss but if there is profit, it changes to nonpassive.  Doesn't make any sense at all.  If I change the code to 4 which is commercial property, it stays passive with a profit or a loss.  So, I changed the code to 4.  Must be some sort of glitch with code 5.  Can't think of any other explanation.

 

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TaxGuyBill
Level 15

It is not a glitch, it is the law.

For land (and self-rentals), losses are passive and profits are nonpassive.

View solution in original post

sstreit
Level 2

Wow, ok, I was not aware that was the case.  Thank you for the clarification.  I have confirmed that in IRS Publication 925.  

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