Rental Losses

[Duane Anderson]

Taxpayer has adjusted gross income over $200,000 for last several years (MFJ) so his rental losses and child care credits as not deductible.

The net book value of the rentals (six) is more than the debt. Can we transfer the rentals to a new S corp and deduct the rental losses currently since he has equity in them?
If we can set up an S corp, how do we deduct the carry forward losses from prior years on their individual 1040...? Thanks,,,Duane Anderson

[Roland Slugg]

Can we transfer the rentals to a new S corp and deduct the rental losses currently since he has equity in them?

No. The accumulated PALs of an activity are released when the activity is fully disposed of in a taxable transaction to an unrelated party. (Code §469(g)(1)(B)) A corp owned by the taxpayer is a related party as described in Code §267(b).

FYI: There are also special rules when an activity is transferred due to death or by gift.

[Burke]

Bad idea to put more than one in an S-Corp due to liability issues. I had one rental property in an S-Corp which turned out okay because that was the only asset and activity in it, so when it was sold, it terminated. That was before LLC's were available. I still would not co-mingle properties.