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Passive Activity Loss/Credit
Posted on 1/31/13 at 6:26 pm
Posted on 1/31/13 at 6:26 pm
My fiance and her brother own a home they rent out. In years past she has claimed the income and used the interest/real estate tax deductions on her return.
This year her brother is claiming the deduction and reporting the rent income.
Yet, she get a message today saying her return is delayed because is contains the limit or deduction of Passive Activity Loss Limitations. I look at the paperwork for the return and this shows up nowhere on it, so why is it giving us this problem with the credit when it doesn't show up on the tax forms sent to the IRS?
This year her brother is claiming the deduction and reporting the rent income.
Yet, she get a message today saying her return is delayed because is contains the limit or deduction of Passive Activity Loss Limitations. I look at the paperwork for the return and this shows up nowhere on it, so why is it giving us this problem with the credit when it doesn't show up on the tax forms sent to the IRS?
1
Posted on 2/1/13 at 5:10 am to tylercsbn9
It sounds like your fiance may not have reported the rental as an active participation rental property in prior years, or she may have been over certain income levels causing the losses to be disallowed. If so, then your fiance should have filed a Form 8582 to track the disallowed passive activity losses.
What might be more troubling is the IRS could assert your fiance, and her brother, made a change in accounting methods when they changed who recognized the income and expenses. Your fiance, and her brother, should sit down with a CPA and discuss getting the matter corrected so that all of their prior returns properly reflect 50% undivided interests in the rental property instead of alternating years of 100% ownership.
What might be more troubling is the IRS could assert your fiance, and her brother, made a change in accounting methods when they changed who recognized the income and expenses. Your fiance, and her brother, should sit down with a CPA and discuss getting the matter corrected so that all of their prior returns properly reflect 50% undivided interests in the rental property instead of alternating years of 100% ownership.
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