California Real Estate Professionals

[GTS1101]

I had a client who was a California Real Estate Professional for the first time in my practice this year. I was looking for some direction from someone on this forum who has experience in this area. CA Real Estate Professionals activities are still considered passive under California Law. So my question is does that mean every year any losses from rental activities whether it is a residential real estate or commercial prop it all is passive and cannot be deducted unless you have passive income? Or do both the residental and commerical prop still qualify for the 25,000 allowance if active participation? Also I am using Pro Series 2008 and I cannot figure out how to fill out form 3801 to make this calculation. Anybody have experience using Pro Series in California for a Real Estate Professional? So if on the Federal they are treated as non-passive and a full loss then I assume you have to make an adjustment on Form 3801 for California? I am confused. Thanks for anyone who might help with this complex situation.

Thank You!
GTS1101

[DTS]

Gts

I have no RE pros and I don't use Proseries, but I'll run an example through my program and see how it looks and report back to you.

Is this is strickly a Proseries question? If so, I won't be able to help. Let me know.

D

[GTS1101]

Dts

Hi,

Thank You very much. No this is not specifically a Pro Series question. Since I have never dealt with the area of RE Pros I am not to familiar with them. I am trying to understand the rules in California regarding RE Pros so that way I know how to enter it into my tax software. By the way which software do you use? I have used taxwise for 12 years but I am fed up with them. I don't like CCH at all. There are a few things about Pro Series that I don't like one being that you can't override any numbers or it won't efile, but other than that after evaluating the program it is a huge time saver. There are so many auto calculations in Pro Series that I think I could process more returns and be more efficient. Thank you for your help, and your time to take a look at this scenario for me. I greatly appreciate it.

Thanks!
GTS1101

[DTS]

Rentals

GTS,

The only way I can get the losses deducted on the 540 is to put the rental activity on Sch C. Anything on Sch E for a RE pro is unallowed in CA.

Like I mentioned earlier, I don't have any pros that rent property and have those losses.

If you are not in a hurry for this info, I would like to call the FTB hotline and see if I can find out more on this. Very interesting. My Spidell book says there are "differences" between CA and the Fed on these losses.

So, let me know how fast you need this info. Maybe, someone here in CA with RE pros and these losses will jump in and clarify this for us.

D

[DTS]

Rentals

I played around with my program after reading more on this for CA and the Fed.

I put the rental income on C, showed material participation and then put the loss on L43, pg. 2 of Sch E and to show this loss, I had to bring up pg. 1 and then check RE Pro and passive activity.

Having never had this situation before, I am not sure this is the correct way to report, but it does allow the passive loss on the 540.

With the holiday weekend, you might have to wait for some confirmation on this, so hang in there.

D

[abby]

still an active participant

I do have a client or two in that situation - and the losses in CA are allowed using the $25k active participation limits, suspending the rest. I had a quick look at last year's return, and the 3801 (regular and AMT) are filled in just as the 8582 would be if they weren't an RE Pro. They would almost certainly qualify as an active participant if they can qualify as an RE PRO - at least in any circumstance I can think of.

My client is a CA resident, if yours isn't, I believe you have to prepare the form for ALL SOURCES and for CA only.

I use Ultra Tax. Hope that helps -

[DTS]

I do have a client or two in that situation - and the losses in CA are allowed using the $25k active participation limits, suspending the rest. I had a quick look at last year's return, and the 3801 (regular and AMT) are filled in just as the 8582 would be if they weren't an RE Pro. They would almost certainly qualify as an active participant if they can qualify as an RE PRO - at least in any circumstance I can think of.

My client is a CA resident, if yours isn't, I believe you have to prepare the form for ALL SOURCES and for CA only.

I use Ultra Tax. Hope that helps -

I just took the example off the C and removed it as a passive activity on the E. The 1040 is allowing the whole loss, whereas CA is allowing the $25,000.

[GTS1101]

Thank You!

dts

Thank you so much for your effort to help answer my question. Your help is greatly appreciated. And abbey thank you for letting me know that CA allows 25,000 for RE Pro's. As I have said in the past this board is so helpful. I appreciate all the knowledge available and the willingness of everybody on this board to help each other out in tough situations.

Thank You!
GTS1101