Passive Activity Losses

[geekgirldany]

Partnership has 3 members, parents and one child. Ptrshp has three rental properities. There were some years where there were losses. The child was around 18 or 19 when this was setup. He never had any income. Went to college and then graduate school. So been a full time student the entire time... to what I have been told.

Now the losses that were never used by the child, from my reading it appears that the losses would be used when any of the rental props are sold, is this correct?

[Kram BergGold]

Suspended Losses

Assuming that tax returns were filed, showing the suspended passive losses, you are all set to use them when the partnership shows some positive income from rents or sales. If tax returns were never filed for the child, then I do not know how you proceed.

[Roland Slugg]

First of all, this may not be a partnership for tax purposes at all. Many people mistakenly believe that rental property with two or more owners constitutes a partnership and requires the filing of a partnership return. This is not true. In most cases it is simply "jointly owned property" for which a partnership return should not be filed. See the instructions for F-1065, page 2, "Definitions -- Partnership."

Regardless of whether there is a true "tax" partnership or not, if the child "actively participates" (as that term is defined in Code §469(i)) then he is entitled to deduct up to $25k of losses each year, unless his MAGI exceeds $100k ($200k if he is married). If he so qualifies for that special loss deduction, some of the loss may actually be deemed "used" even if he doesn't have to file a return. That used loss, in turn, may create an NOL. All of this needs to be calculated and tracked so that when the year comes that he is required to file a return, the correct amount of PAL and NOL carryovers can be reported on that initial return.

If the child does not actively participate, the situation is much easier. All that's required is that his share of the passive losses be correctly allocated to him each year and accumulated for eventual offset against future income from that or other passive activities. This can be done on a simple, ongoing spreadsheet or even by completing a F-8582 each year even though no tax return is actually filed for the child.

[geekgirldany]

Thanks Roland.

Mother could be classified as a real estate professional because she does spend a considerable amount of time on the rentals, which are out of state. I have been told that the child is actively involved with the mother keeping up the rentals.

The partnership started in 2005, so I would have to get all the tax returns from then until now to come up with any income or losses for the child to get any NOLs, correct?
2014 the child did have income. No income in prior years.

Also this brings me to this all being in a partnership, doesn't the basis, at risk, and passive rules come into play here? There is a loss for 2014 and there were losses in 2012 and 2013. There are no partner basis worksheets and/or capital account information.
So, if going by that there is no basis for the partner's to take a loss.
Again I would have to go back and figure out their basis, correct?

It has been awhile since I worked on a partnership, I want to make sure I am getting this right.