Rental house, passive loss?

[Possi]

New client, lived in their home until they were stationed out of state.
Rented house out and used a rental company to manage the property. Property is in NC and they live in VA. They are in touch with the real estate company and the owners pay for all the repairs and keep in touch with the company. The return has been done the last 2 yrs by VITA and it was done as passive activity subj to passive loss limitations. No losses were allowed for these 2 yrs of renting.
They reverted back to personal property in Nov '04. It was available for rent from 02-2003 through 10-2004.
They sold it in 02-2005.
I know I have to recapture depreciation, but every rental prop I've ever done was active participation.
I read in the Tax Book that the carried forward losses can be taken when the property is disposed of.
Do I do this by adding it to the basis of the sale? Since it qualifies for the cap gain exclusion (personal home for 2 of last 5 yrs) and it was not rental prop when sold, do I do this on the sch D?
And, finally, do I get a followup question?

[Possi]

is there an answer?

Just wondering if anyone has an angle on this situation...
thanks,
~p

[theresa d]

schedule e

i believe the suspended losses would be reported on schedule e in the year of sale.

[Brian EA]

New client, lived in their home until they were stationed out of state.
Rented house out and used a rental company to manage the property. Property is in NC and they live in VA. They are in touch with the real estate company and the owners pay for all the repairs and keep in touch with the company. The return has been done the last 2 yrs by VITA and it was done as passive activity subj to passive loss limitations. No losses were allowed for these 2 yrs of renting.
They reverted back to personal property in Nov '04. It was available for rent from 02-2003 through 10-2004.
They sold it in 02-2005.
I know I have to recapture depreciation, but every rental prop I've ever done was active participation.
I read in the Tax Book that the carried forward losses can be taken when the property is disposed of.
Do I do this by adding it to the basis of the sale? Since it qualifies for the cap gain exclusion (personal home for 2 of last 5 yrs) and it was not rental prop when sold, do I do this on the sch D?
And, finally, do I get a followup question?

You get what you paid for. Vita is free . I have no idea why they would put passive participation on the rental activity

I may be wrong on this one , but I will go back and amend those returns and claim my losses. I will then do the sale of residence work sheet to determine how much gain I can exclude and at the same time pay Capital Gainns tax on the depreciation


good luck

[rosieea]

You get what you paid for. Vita is free . I have no idea why they would put passive participation on the rental activity

I may be wrong on this one , but I will go back and amend those returns and claim my losses. I will then do the sale of residence work sheet to determine how much gain I can exclude and at the same time pay Capital Gainns tax on the depreciation


good luck

I agree. Just because there is a management company does not mean there's no active participation.

[Possi]

thank you!

Thanks, all of you!
I will amend and do the sale of residence worksheet.
That is what I wanted to do, but I needed the "big guns" to validate me!
~p

[Unregistered]

slow down there hoss! If they are not managing the property IT IS PASSIVE.

Better be careful amending those previous returns.

[jainen]

passive loss rules

I think y'all tripping over vocabulary. ALL rental property is subject to passive loss rules ALL the time. If there is active participation and other criteria are met like filing status and income level, they can deduct certain losses. But they didn't. So Theresa's answer is correct, take suspended losses on Schedule E in year of sale. Then apply Sec 21 exclusion in normal way. Depreciation is treated as unrecaptured section 1250 gain.

[Brian EA]

I think y'all tripping over vocabulary. ALL rental property is subject to passive loss rules ALL the time. If there is active participation and other criteria are met like filing status and income level, they can deduct certain losses. But they didn't. So Theresa's answer is correct, take suspended losses on Schedule E in year of sale. Then apply Sec 21 exclusion in normal way. Depreciation is treated as unrecaptured section 1250 gain.

I am in total disagreement with you on this one. Not because they did not manage the rental means it was not active participation. They hired a management company who received compensation for managing the activity. If there was repairs to be done they instructed the company to get it done

See TTB 7-9 under material participation.

[jainen]

disagree with HER

Don't disagree with ME. All rentals are passive activities by definition. Active participation doesn't change that. I never said they weren't eligible for the $25000 special loss allowance. Their tax preparer said that, so you can disagree with HER if for some reason not in the original post you think they fall within income phaseout and other limits.

[jainen]

disagree with HER

Don't disagree with ME. All rentals are passive activities by definition. Active participation doesn't change that. I never said they weren't eligible for the $25000 special loss allowance. Their tax preparer said that, so you can disagree with HER if for some reason not in the original post you think they fall within income phaseout and other limits.

[natiro]

Disagree - suspended losses

You can only take suspended passive losses on disposition if the property is disposed of and all realized gain is recognized. Since in this case all of the realized gain is NOT recognized (since it's excluded by Sec 121), the suspended passive losses are not allowed upon disposition. IRC 469(g)(1)(A)

[Brian EA]

Don't disagree with ME. All rentals are passive activities by definition. Active participation doesn't change that. I never said they weren't eligible for the $25000 special loss allowance. Their tax preparer said that, so you can disagree with HER if for some reason not in the original post you think they fall within income phaseout and other limits.

Sorry YOUR LORDSHIP. I agree with you that all rentals are passive activities by definitation and its true that active participation does not change that.

When I said that I disagree with you I was talking about active and passive participation. In my first comment I said that " you get what you paid for" and that's exactly what happened. Some lame duck from VITA did the return and checked the passive box. If the limitation did not apply the pro who introduced this thread would not have agreed to amend the return. He has all the facts with him.

My apologies

Man! You got so angry that you had to post the thread twice

[Possi]

Active participation

I believe this is active participation and the VITA person did not mark the correct box. The next year, the VITA followed suit. The first year, depreciation was not taken, either, and the second year it was taken without any backup information. No depreciation worksheets, nothing.
That is why I agree that amending the returns is what I should do.
The real estate company must contact these owners for everything. The only reason they are involved is b/c the military family is stationed here in VA and the house is in NC. Still, they "actively participate."
This is the best message board. I feel like I'm in an office with other people who know what they are doing. Being a sole-prop with no employees, you all have been such a help.
Thanks again,
~possi