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?

1 ...

Report Post

Posted by Poodlebrain

Way Right of Rex

Member since Jan 2004

19860 posts

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.

1 ...

Report Post

Posted by tylercsbn9

Cypress, TX

Member since Feb 2004

65876 posts

Posted on 2/1/13 at 8:08 am to Poodlebrain

Thanks. In years past she's always put it on her taxes..... Just her brother is doing it this year. When she did her turbo tax she didn't claim any interest or taxes on the house nor did she put any income. There was some random question that popped up and asked the income from the house but she put zero. In years past she hasn't had to claim any loss on the house.

ETA...ignore what I've posted above...was able to find past returns on turbo tax....not familiar at all with them since I use H&R.

she's a teacher so I doubt her income was over some limit and sifting through her past returns online it looks like she did do the 50% the last two years (whether her brother put the other 50% on his returns I don't know). 3 years ago she was living in that property b/c she was going to school. Looks like she didn't claim any loss last year in line 17, but did for about $1400 in 2010.

And looking at her current return it does have form 8582 filled out (is this a new form for this year?) and under prior year's unallowed losses is shows -$725 and then for total losses allowed it shows $0 and that also shows up on line 17 on the 1040.

Sorry for the confusion and likely dumb questions, but this is all new to me since I've never dealt with this before.

This post was edited on 2/1/13 at 8:46 am

Page 1