Special real estate rental loss allowance - elective?

[appelman]

In Pub. 527, the discussion of the special allowance for rental real estate losses with active participation speaks of what you "can deduct." Does this mean that this deduction is elective? I.e. could you deduct less than the maximum allowable or none at all? This could be helpful when the deduction would lead to an NOL that you expected to be wasted in subsequent years, while the passive loss carryover would be useful further down the line. Anyone have any thoughts on this?

[Roland Slugg]

No, that special $25K allowance is not elective. The words "can" or "may" in the rules should not be interpreted to mean that if a deduction is not taken that it can be carried over to future years.

[Bees Knees]

This could be helpful when the deduction would lead to an NOL that you expected to be wasted in subsequent years, while the passive loss carryover would be useful further down the line. Anyone have any thoughts on this?

I don't understand how an NOL carry forward would be wasted in future years, but a passive loss carry forward would not be wasted? The NOL carry forward does a better job of lowering tax than a passive loss carry forward.

[appelman]

Special real estate rental loss allowance - elective?

Other people have asked this. The NOL can be eaten away in years where the taxpayer is in a low tax bracket, while the unallowed passive loss will usually still be there when the rental property is sold at a profit and the taxpayer needs every bit of loss he can lay hands on. This is not hypothetical; it has happened to some of my clients.

[appelman]

Special real estate rental loss allowance - elective?

I'm not suggesting that you can take the special allowance later, but only that you can leave it as unallowed passive loss. I feel pretty good about saying you're not an active participant and forgoing the allowance altogether. Forgoing A PORTION OF IT could be more problematical.

[OtisMozzetti]

avoid having any special allowance for passive loss

One way to avoid using up passive losses from rental activity until there is a total disposition of the passive activity is to keep the modified AGI above $100-$150K. In other words, when passive losses are unallowed, it might be a blessing instead of any curse.

[Davc]

I'm not suggesting that you can take the special allowance later, but only that you can leave it as unallowed passive loss. I feel pretty good about saying you're not an active participant and forgoing the allowance altogether. Forgoing A PORTION OF IT could be more problematical.

So you also suspend the loss for other clients with the same facts and circumstances who want to take the loss currently?