Rental Loss

[nkustura]

Hi all,

I have a client who actively participated in renting her condo in 2011. The condo was available for rent the whole year and actually rented for the most part of the year. She ended up with rental loss of $16k. She is filing a joint return with her husband for 2011 and they had MAGI of $156,000. I know that if the MAGI is above $150k for married filing jointly the loss from passive activity can't be taken, but I am not sure if the rule is different if she actively participated in renting of the condo (advertised, found tenants, did repairs or found someone who will do the repairs, painted the condo inside, collected rent and deposited into her account, etc.)

Can they deduct any of this rental loss on 2011 return?

Thanks,
nk

[snowshine]

In short: no, all losses suspended and carried forward. If she were a real estate agent or provided services like a b&b or hotel then she has some other options.

[nkustura]

Thank you for the response.

Do you think that going forward the rental activity can be set up as a business if she actively participates in getting it rented out and maintained? Maybe issue a 1099 for the rental income and report the expenses on schedule C?

Thanks

[Gary2]

Thank you for the response.

Do you think that going forward the rental activity can be set up as a business if she actively participates in getting it rented out and maintained? Maybe issue a 1099 for the rental income and report the expenses on schedule C?

Playing with forms won't change the nature of the activity. Read the rules for material participation (which are more stringent than active participation). It seems highly unlikely this could qualify.

[Gretel]

In short: no, all losses suspended and carried forward. If she were a real estate agent or provided services like a b&b or hotel then she has some other options.

Just a little correcting. It's a real estate professional that can treat such losses as non passive.

[Burke]

Thank you for the response.

Do you think that going forward the rental activity can be set up as a business if she actively participates in getting it rented out and maintained? Maybe issue a 1099 for the rental income and report the expenses on schedule C?
Thanks

It's not that simple. Material participation does not qualify her as a real estate professional. Your client must jump through a lot of hoops to qualfy. Activities and number of hours, etc, etc.
Check those rules out in TTB 7-13.

[ddoshan]

Actively participating and materially participating are two different animals. It does not appear that your client would meet the materially participating part. Very difficult to do.

[AZ-Tax]

I have a similar situation

I have a similiar situation. TP AGI over $150K (phased out for rental losses) and spouse manages rental and swears she put in over 800 hours in 2011 managing property (this is her only job) still does not seem enough to satisfy the IRS rules of her having a property management business on Sch C. In my early yrs of tax preparation (2003, 2004) I did file a Sch C for a TP who filed Single and had a 40 hr week job but her AGI was way under the phase out never the less the IRS never did have a issue with it. In about the 4th yr, I changed her to a Sch E. This is quite different for its a matter of taking about $12K of rental losses w/Sch C vs NO $0 losses with Sch E.

http://www.irs.gov/publications/p527/ch03.html