Rental Loss disallowed because MSF and lived with spouse

[Judy rocks]

Client has a rental house with a 10K loss, had a quick 1 year marriage and wants to file separately, they lived together the entire year of 2014. So he loses the 10K rental loss. The loss is disallowed so I assume it isn't a Passive Loss Carryforward, but I can't find a cite confirming this for my files. My software Drake is not creating a 8582 but California is creating a 3801 with the full 10K as a Passive Carryforward.

[Roland Slugg]

The usual $25k loss deduction for passive rentals with active participation is, indeed, denied on MFS returns if the spouses lived together at all during the year. Code §469(i)(5)(B) (This can actually be a smart tax planning ploy for a couple with a loss they don't want to take in the current year because it will do them more good in a future year.) The PAL is not lost, but carries over to the following year, just like any other suspended PAL. Code §469(b) and Regs §1.469-1(f)(4)(i)

[Burke]

Agreed. It is carry-forwarded. (Is that a word?) I have one that has done that for years.