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  1. #1
    Join Date
    Feb 2016
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    6

    Question Reporting a Loss from Rental House Activity on Schedule E, Line 21

    Dear Forum members!

    I have 2 single family homes that I have been renting out since 2014 (one is from 2014-has a profit, one just acquired in 2015-the one with the loss of $359, my AGI is <$100K) and on Schedule E, I have more in expense than in income in the house I just acquired. I do have a full-time job in the health care field (unrelated to rental business) and the rental homes are like a hobby. However, I do fully participate in anything revolving around renting the home out, meeting prospective tenants, calling out ppl for repairs, collecting rent, without using a management company.

    Since I haven't had a loss so far, I am unsure how to proceed with filling out Schedule E, more precisely, line 22/25...do I need to be filling out Forms 6198/8582 or further onto Part II,III,IV?

    Thanks for any and all help!

  2. #2
    Join Date
    Sep 2010
    Posts
    19,901

    Default Re: Reporting a Loss from Rental House Activity on Schedule E, Line 21

    Does the loss on property #2 exceed the profit from property #1?

  3. #3
    Join Date
    Mar 2013
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    18,340

    Default Re: Reporting a Loss from Rental House Activity on Schedule E, Line 21

    Quote Quoting TaxFrk80
    View Post

    Since I haven't had a loss so far, I am unsure how to proceed with filling out Schedule E, more precisely, line 22/25...do I need to be filling out Forms 6198/8582 or further onto Part II,III,IV?
    Have you studied IRS Publication 527 - Residential Rental Property?

    If not, I suggest you study it carefully and thoroughly. You'll find your answer in there.

    https://www.irs.gov/pub/irs-pdf/p527.pdf

  4. #4
    Join Date
    Feb 2016
    Posts
    6

    Default Re: Reporting a Loss from Rental House Activity on Schedule E, Line 21

    No, my profit from property #1 is $8400.

    'Adjusterjack', I have read Pub 527, however I can't say I fully understand the 'at-risk rules'/'i'm at risk'/'passive activity' terminology. I believe that I am actively participating in the rental homes that I own and manage by myself, however, I read rental activity is normally considered a passive activity. I know I am not a 'real estate professional' either since I don't consider the rental activity my primary business, nor do I participate in it for more than 100hrs/yr. I am not entirely sure I would have to fill out Form 6198, but perhaps 8582? But then again I have an overall gain from both my passive activities (gain of $8400 from one/loss $359 on the other).

    Thank you!

  5. #5
    Join Date
    Mar 2013
    Posts
    18,340

    Default Re: Reporting a Loss from Rental House Activity on Schedule E, Line 21

    I was in the same position when I had rental properties and I filled out the Form 8582 when I had a net loss but not when I had a net gain.

    You'll see why on Page 3 of the Form 8582 instructions - Special Allowance for Rental Real Estate Activities.

    https://www.irs.gov/pub/irs-pdf/i8582.pdf

    So, yes, under that rule, you do actively participate and you really don't have to be concerned with anything until you have $25,000 in losses to deduct and/or your income reaches $100,000.

    Here's the form:

    https://www.irs.gov/pub/irs-pdf/f8582.pdf

    However, based on the Exception on Page 1, it looks like you don't have to fill out the form 8582.

    Leave it to the IRS to write something like this. LOL.

    "Rental real estate activities with
    active participation were your only
    passive activities."

  6. #6
    Join Date
    Feb 2016
    Posts
    6

    Default Re: Reporting a Loss from Rental House Activity on Schedule E, Line 21

    Thank you for the thorough answer 'adjusterjack', that makes sense now! I read the instructions for Form 8582! I am sure hoping to not have a net loss anytime soon with the rentals! Let's keep it on the positive side.

    Thank you!

  7. #7
    Join Date
    Mar 2013
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    18,340

    Default Re: Reporting a Loss from Rental House Activity on Schedule E, Line 21

    I had 3 rentals for 20 years. In the early years I ran a tax loss thanks to depreciation even though the rents exceeded the mortgage payments. In later years, as rents rose, I ended up with net gains.

    Don't forget depreciation.

  8. #8
    Join Date
    Feb 2016
    Posts
    6

    Default Re: Reporting a Loss from Rental House Activity on Schedule E, Line 21

    Quote Quoting adjusterjack
    View Post
    I had 3 rentals for 20 years. In the early years I ran a tax loss thanks to depreciation even though the rents exceeded the mortgage payments. In later years, as rents rose, I ended up with net gains.

    Don't forget depreciation.
    I did get both homes for pretty low price, so my depreciation on the home and appliances is not super high, even along with the other expenses I should be on a positive. Hopefully next year I will be positive on both houses and keep it that way!
    I don't mind doing my taxes, however, when things change, some of the Publications' terminology stumps me and I feel I'm spinning my wheels trying to find the answer that actually suits my given situation.

    Thanks again for the help!

  9. #9
    Join Date
    Mar 2013
    Posts
    18,340

    Default Re: Reporting a Loss from Rental House Activity on Schedule E, Line 21

    Quote Quoting TaxFrk80
    View Post
    I did get both homes for pretty low price, so my depreciation on the home and appliances is not super high,
    That's good, because you have to recapture the depreciation when you sell the property. If you take 20 year straight line like I did the bite won't be too painful.

    Quote Quoting TaxFrk80
    View Post
    I don't mind doing my taxes, however, when things change, some of the Publications' terminology stumps me and I feel I'm spinning my wheels trying to find the answer that actually suits my given situation.
    The first year I had a rental I paid an accountant to do my taxes. After that I just used the same format and studied the instructions year after year and it became second nature.

    Ironically, the first year I had a rental I got audited. I had kept meticulous records and the audit didn't change a dime.

    Now that you have the financial aspects in tow, here's hoping you are blessed with good tenants for as long as you own the properties.

    But just to be prepared, locate your state's landlord tenant statutes, eviction statutes, and small claims court guides and keep them handy.

  10. #10
    Join Date
    Oct 2014
    Posts
    8,238

    Default Re: Reporting a Loss from Rental House Activity on Schedule E, Line 21

    Quote Quoting adjusterjack
    View Post
    Leave it to the IRS to write something like this. LOL.

    "Rental real estate activities with active participation were your only passive activities."
    While I would have suggested different wording for that were I still at the IRS and were asked to review that publication (the publications are usually sent to National Office counsel for review before release) the technical language used is there because of how Congress wrote the law. There is a special rule for what makes a real estate business a non-passive activity. Active participation is not itself enough as it would be for other businesses. You can thank people in the past who have abused real estate activities to gain unintended tax benefits for that.

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