Discussion:Loss limit on rental real estate
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| 23 March 2006 | |
| Would hiring someone (property management company) to manage your property for you disqualify you from being in "Active Participation"? IRS code stated "You actively participated in a rental real estate activity if you owned at least 10% of the rental property and you made management decisions in a significant and bona fide sense. Management decisions include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions." My client, 100% owner, lives overseas, but still makes every decision on expenses and approves new tenants. I wonder if it makes any difference if rent checks were paid to management company, and then it turns pay to my client. | |
Mtmckeecpa (talk|edits) said: | 23 March 2006 |
| Bean,
My understanding is that if your client hired a property mgnt firm, AND is still engaged in the rental process, then that is considered "active participation". I take this approach with client's on their Sch E. My clients still make all the final mgnt decisions, even though they outsource the collecting of the rent to a property mgnt firm, such as (1) approving new tenants, (2) approving repairs, (3) setting rental policies (4) increasing rents, etc... | |
| 23 March 2006 | |
| That's what I thought, just wanted to be sure. Thanks Mtmckee! | |
- Questions from non-pros have been moved to another discussion on ConsQ forum, along with the posts that responded directly to those questions. Some of the responses below may have been responding in part to those questions, which raised the issue of carrying forward losses you couldn't recognize in current period.
| April 24, 2008 | |
| They carryforward forever until you either sell it or have income. Those losses will offset either way. I've had this come up a couple times among my clients recently, must be a moon phase. The worst is still where a home is converted to rental, the three years of non-residence expires, so the free 250k/500k is lost...and I just struggle with this. Is this what Congress intended? It seems that there should be a way to deem a sale, lock in the free profit, adjust the basis to the deemed sale fmv, and move on in rental land. I've got a guy who'll have 150k of profit, none of which would have been taxable had he sold six months ago(other than the recapture)....I just don't get it. | |
Death&Taxes (talk|edits) said: | 24 April 2008 |
| Congress had the chance to approve the deemed sale under Section 311(e) of the Tax Reform Act of 1997, but instead firmly slammed the door closed. See http://www.taxlinks.com/rulings/2001/revrul2001-57.htm which was later codified by Congress. I wrote about this in a story called Seven Hawks Circling which concerned some people not being satified with a tax free 500K but wanting more.
We could go back to pre-1997 and Section 1034 or bust. | |
| 25 April 2008 | |
| JR - we actually have a client that plans to move back into the residence before selling, long enough to satisfy the 2 years to avoid this. We warned them when they moved out and started the rental, and they planned it this way. | |
| April 25, 2008 | |
| I've got one of those as well, the clock's ticking pretty fast on her..... | |
(Note, these posts predated the new nonqualified use rules)
| 8 May 2008 | |
| I rarely dealt with high income individuals at my other job so not many phase-outs. Here is a different story.
Is there a phase out amount for K-1 losses? i.e. - Can an individual or couple (making over the phase out amount) set-up an S Corp and carry their rental losses through to their personal return through a K-1 ? | |
Death&Taxes (talk|edits) said: | 8 May 2008 |
| They can carry the losses to their personal return, but the losses retain the same characterization so that if the activity is passive, the loss is subject to the passive loss rules. | |
| 8 May 2008 | |
| Thanks I figured it was something like that.
I've actually begun to see more hybrid real-estate activity where people own rentals, but also do flips and refurbs and the like. Any cahnce these can looked at as one big Sole Prop. Sched C business or a Sched C business with rentals as an attachment. Maybe I'm just trying to prove law school doesn't take away all your creativity. | |
| May 8, 2008 | |
| And you never ever ever want to hold RE in a Corp. By hold, I mean keep... | |
| May 9, 2008 | |
| Many discussions on this, search all you like, but it NEVER has a happy ending. And that's the problem. | |
