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Vacation Rentals - Other Passive Exceptions

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Level 1
last updated ‎July 07, 2020 2:44 PM

Scenario :

Client with a Vacation/Rental property allocated   299 Rental  days / 66 days personal (~82% rental use)

The total rental loss is $116K  - Proseries is classifying as "other passive exceptions" and allowing ~$32K current year deductible rental loss on Schedule E and Schedule 1.   Shouldn't this be "0"?

Shouldn't the full $116 rental loss be suspended and show up on 8582? 

Thanks.

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7 Replies 7
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Level 12
last updated ‎July 07, 2020 2:44 PM

First thing I need to ask, HOW is there a loss of $116,000?

 

And just check, did this property go back-and-forth between personal and rental use?  Or was it 100% personal then converted to 100% rental (or vice versa)?

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Level 1
last updated ‎July 07, 2020 2:44 PM

Its a 2.5 million rental property, lots of maintenance, huge mortgage etc while rental income received only $17K last year.

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Level 12
last updated ‎July 07, 2020 2:44 PM

299 rental days and they only received $17,000 for that type of property?  Is it being rented at Fair Market Value?  Something seems fishy to have come up with a loss of $116,000.

And  just to confirm, that supposed $116,000 loss is only from this one year?

And please confirm my other question about it being back-and-forth between rental and personal use, versus just being converted to 100% rental or personal use.

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Level 1
last updated ‎July 07, 2020 2:44 PM

The loss numbers are irrelevant to the question.  It's a Vacation Rental (i.e. these people use the property as vacation property every year and also rent it out.)  This individual is NOT a real estate professional.

Rented FMV  299 days

Personal use 66 days  

Proseries is automatically classifying (X) as "other passive exceptions"  thus allowing a % of the current year loss as a deduction.   AGI is north of $3 million.   P/Y return prepared by Big 4 and similar scenario and % of the loss deducted as "other passive exceptions".   

I guess the question is the proseries worksheet reliable ?

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Level 12
last updated ‎July 07, 2020 2:44 PM

@pm-zz wrote:

The loss numbers are irrelevant to the question.


 

While that is true, I'm not going to help you through a question when the basis of the entire question seems really wrong.  I would be happy to try to help you if I understand why such a large loss occurred.  Without an explanation, something seems REALLY wrong and I wouldn't want to help you prepare an incorrect tax return.  With the limited information you have provided, it doesn't seem to be rented at Fair Market Value, in which case Schedule E could be the incorrect place on the tax return for it.

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Level 10
last updated ‎July 07, 2020 2:44 PM

I agree with Bill.  $17K / 299 days is $400/week.  In what state can I rent a $2.5Mil home for $400/week?

I don't do enough of these to know the rules cold.  Mostly I'm just thinking out loud here.  With that much personal use you should be hitting a 280A limitation preventing just about any loss.  Exceptions would be for RE Tax and Mortgage Interest IF this qualifies as a second home.  RE Tax will end up with other taxes and the total would be limited to $10K, so I can't imagine any of that would be allowed.  Mortgage interest would be limited to interest on $1M of acquisition debt.  Some of that *might* be allowed but ProSeries isn't going to be able to apply the limit, you'll have to do it manually.

Rick

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Level 12
last updated ‎July 07, 2020 2:44 PM

"Rented FMV 299 days"

There seems to be no unoccupied dates at all, which is unlikely. Also, there seems to be a missing preposition or adjective or verb. Is that "Was rented at Fair Market Value for 299 days" or perhaps "It would rent for $X and would be computed as if it had been rented for the remaining 299 days."

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