rental losses from sch e and 1065 K11

Technical topics regarding tax preparation.
#1
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the client has sch E net income 70K and 2 1065 K1 rental loss (both comercial property rental, cash purchase , no loan) ) 120K

W2 income 50K, no other items.

My understanding is sch e net income can be offset by 1065 K1 rental loss, then t will have 25K loss allowance from the remaining losses to offset w2 wages , but however, I couldn't come to this result.

the software ( Drakesoft) I use either disallowed all 120K K-1 losses ( if check the box "other passive: ) or allow all ( if check

the box " non passive " or "active rental"

Please advise , thanks!
 

#2
sjrcpa  
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The special $25K loss allowance rule is only for available for rental real estate with active participation.
The K-1 losses are probably not that.
 

#3
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thanks, Sjrcpa. so all losses from k1 shall be carried forward even with plenty of basis ( cash purchased)

but when I see this article , I am very confused
https://www.crowdstreet.com/resources/t ... te-taxes-i
loss limitation portion
 

#4
KoiCPA  
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There are multiple reasons losses might be suspended. The one you linked to discusses only two of them: at-risk limitations and basis limitations.

The 25,000 you're talking about is a Sec 469 allowance for active participation in real estate. So... if there's no at risk limitation, and if there's no basis limitation, and if there's active participation, then they'll be allowed 25,000 of passive income against non-passive income, but the rest will be subject to passive activity limitations.

If you're not familiar with all the terminology, you need to be very careful. Sec 469 is very particular about terminology. for example, "active participation" does not mean "non-passive."
 

#5
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Thanks, KoiCPA,
Got 25K allowance now!
 

#6
marknyc  
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Assuming the K-1 rental losses are not active participation activities (which is almost certain), I don't think there should be any $25K "active participation loss allowance" on the tax return.

The Schedule E active participation rental gain can be offset by the non-active participation K-1 rental losses. But the K-1 losses in excess of the of active participation gains are not eligible for the $25K loss allowance because they are not active participation activities. This can be verified by slowly working your way through Form 8582.
 

#7
sjrcpa  
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I agree.
 

#8
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Active particpation requireds only 250 hours for all the rental properties . the K1 rentals are comercial rentals which have mutiple tenants and they spend a lot of time last year . so I think they qualified for that .
 

#9
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You're mixing up different code sections and concepts.

You'll want to read IRS Pub 925. Really, IRC Sec 469 and the regs is what you should read, but the pub is more readable. If you do a ctrl+F in that pub, you'll notice "250 hours" is nowhere in it.
 

#10
KoiCPA  
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Yeah, 250 hours is the safe harbor for Sec 199A, and is measured at the entity level. Nothing to do with active/passive or the taxpayer's individual participation.
 

#11
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Koicpa, and manvstax:

so you meant for these 1065 K1s, they qualified for qbi , but in the personal return,shall still treat them as passive loss ?


Thanks!
 

#12
sjrcpa  
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Yes. Something can be QBI and passive.
 

#13
KoiCPA  
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RosyinOregon wrote:Koicpa, and manvstax:
so you meant for these 1065 K1s, they qualified for qbi , but in the personal return,shall still treat them as passive loss ?
Thanks!


That's what I would expect.

QBI and active participation aren't actually connected to each other at all.
 


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