Question

1. Joe Taxpayer has two rentals, A & B. Rental A has a loss of $30,000, rental B has a loss of $20,000. Joe is single and has AGI of $110,000. What are the allowable losses by property and the suspended losses by property?

2. Would your answer change for California? How?

3. What is the Joe’s AGI?

4. Would your answer change if Joe was married and filing a joint return. How?

5. Would your answer change in number 1 if Joe was a real estate professional (federal)? California? How?

Answer 1

Rental Losses are passive losses.

A suspended loss is not realized in a given tax year(say 2019) due to passive activity restrictions. These are carried forward to be counted in filing against passive income generated in next year(2020). for eg, if suspended losses are $5000 in 2019 and passive income in 2020 is $8000. Then the net income in 2020 will be counted as $3000 instead of $8000.

Allowable loss: can be deducted from your income or capital gains. Examples of losses that may be allowable are trading losses, losses on letting out land and property and capital losses from the sale of shares and other assets.

For California, AGI and tax filing is done separately.

Joe's AGI is $110000. Married filing jointly have different tax brackets. So, AGI would change in that case.

There are only two exceptions to the passive loss ("PAL") rules:

• you or your spouse qualify as a real estate professional, or
• your income is small enough that you can use the $25,000 annual rental loss allowance

There are some eligibility conditions which should be fulfilled to get these exceptions to (PALs).