self-rental

[Gretel]

Partnership 1 consists of A & B (husband/Wife), rents real estate to partnership 2 consisting of B, C & D. B materially participates. Any loss on K-1 (partnership 1) for A = fully deductible if either other passive income or $25,000 rule applies. Any loss on K-1 for B not deductible at all, or does the $25,000 rule still apply?

Thank you and hope you all had a pleasant Thanksgiving.

[Black Bart]

Hi Gabrielle,

Not much luck on this, eh? Sorry, but I don't know the answer. Maybe if we push it back up to the top a time or two in the next few days, then some knowledgeable soul will stumble over it and give you a clue.

How's the weather out there in Montana? It got really cold here this weekend, so I figure you folks out West must have icicles hanging from then ends of your noses.

[Gretel]

Thanks, Bart. We are getting there, I mean the icicles. Hopefully also more snow.

I checked my Taxbook CD but couldn't come up with anything. Google doesn't come up with anything either. Hope someone knows.

[Bees Knees]

I think the answer is found in the example on page 3 of Pub 925, (which I found through the link from the WebCD)

Example. Kate, a single taxpayer, has
$70,000 in wages, $15,000 income from a limited
partnership, a $26,000 loss from rental real
estate activities in which she actively partici-
pated, and less than $100,000 of modified ad-
justed gross income. She can use $15,000 of
her $26,000 loss to offset her $15,000 passive
income from the partnership. She actively participated
in her rental real estate activies, so she
can use the remaing $11,000 rental real estate
loss to offset $11,000 of her nonpassive income
(wages).

Note that the $25,000 loss is the max loss the taxpayer can take for all activities. Also note the $25,000 rule applis at the partner level, not the partnership. So if the partner is an active participant in a rental activity, the partner gets the $25,000 loss limit, even if the other partners do not get it.

[abby]

self rental, specifically

Gabriele

As far as I understand self rental rules, the fact that B material participates in the second partnership means that Net Income from that K-1 would be treated as non-passive and couldn't offset other passive losses he might have.

I don't believe it affects any of the other rules that would normally apply, as Bees stated, and, in this case, if the partnership K-1 reflects a rental loss, then the loss would flow through the same as a non-self rental loss would, again, allowing the application of the $25k if the other rules for this are met.

By the by, speaking of the weather, I can't remember where in Montana you are - my husband hails from Anaconda, and they had some unusual weather recently - hope you were spared all those falling trees.

[Gretel]

I think the answer is found in the example on page 3 of Pub 925, (which I found through the link from the WebCD)

Thanks Bees, meanwhile I concluded that the $25,000 limit is not effected by self-rental rules. Would you please be so kind to tell me what exactly you did to get the result from the WebCD?

I'd tried to search the 2006 pubs with no result.

[Gretel]

By the by, speaking of the weather, I can't remember where in Montana you are - my husband hails from Anaconda, and they had some unusual weather recently - hope you were spared all those falling trees.

Thanks Abby. I am close to Billings, to warmer area of MT. Not any disaster happened yet, just the normal crazy MT weather.

[Bees Knees]

Thanks Bees, meanwhile I concluded that the $25,000 limit is not effected by self-rental rules. Would you please be so kind to tell me what exactly you did to get the result from the WebCD?

I'd tried to search the 2006 pubs with no result.

Click on Tab 7, then from the table of contents on page 7-1, click on Special $25,000 Allowance for Rental Real Estate....7-12, then click on the blue header for special $25,000 Allowance for Retnal Real Estate.

That link takes you to page 3 of Pub 925 that has the cited example.

[veritas]

A case comes to mind

where an an attorney leased equipment back to his corportaion. He had years where his income was insufficient in the C-Corp to pay the rents which created losses.

The IRS first tried to apply the passive loss rules and then the not for profit rules.

The IRS lost in Tax Court in both instances.

The equipment was incidental to the law practice to which he materially participated.

[Gretel]

Click on Tab 7, then from the table of contents on page 7-1, click on Special $25,000 Allowance for Rental Real Estate....7-12, then click on the blue header for special $25,000 Allowance for Retnal Real Estate.

That link takes you to page 3 of Pub 925 that has the cited example.

Thank you so much. I had no idea that I could click on the heading. I went up to page 7-12 before and than didn't know what to do.

[Bees Knees]

Thank you so much. I had no idea that I could click on the heading. I went up to page 7-12 before and than didn't know what to do.

Anything in blue is a link to something, just like when you see things in blue on a website, it is a link to something else.