[mitchmatch]

So i need an explanation regarding my confusion with PALS. It is my understanding that Passive activity losses are deductible up to passive activity gains, lets say you have $50,000 in passive gain and $45,000 in passive activity losses. If you net them out you get a passive gain of $5,000, now heres where my confusion comes in to play. Lets say that the $50k and the $45 come from real estate activity in which you actively participate and your AGI is $160,000. Their for you are completly phased out right, so i assume therefore you do not get the $25000 passive loss, so my question is can you still use the $45,000 that you originally had?

FAR-76 First attempt.
AUD-79 First attempt.
REG-79 First attempt.
BEC-79 First attempt.

Done!

BECKERS

[silvermoon]

Yes, passive losses are deductible up to the extent you have passive income. The $25,000 passive loss related to rental active participation is a special allowance that allows you to deduct up to $25K in excess of your passive income depending on your AGI and if you meet certain criteria. So this only applies if you have a net loss.

In your example, after you net the passive income and loss, you end up with $5,000 in passive income so this special allowance doesn't even matter. The taxable income is $5K regardless as you have sufficient passive income to offset losses. If you reverse the numbers say $45K passive income and $50K passive loss, then you have a net passive loss of $5K. This would ordinarily be carried over to the next year, but you may be able to deduct the $5K under the special allowance if the loss is related to a rental you actively participate in and your AGI is less than $150K. To clarify more in a different example, if you end up with a $40K net rental passive loss, the special allowance may allow you to deduct up to $25K of that and only carry over $15K to future years.

I'm a total visual learner so check out IRS Form 8582. If you follow the form, it may help answer any other questions.

Results from cramming every single time:
AUD - 76 (05/25/13)
BEC - 74 (11/30/12), 84 (10/05/13) [Note: Retake because I didn't finish written portion...]
FAR - 77 (08/17/13)
REG - 86 (07/06/13)

Ethics [CA PETH] - 96% (11/18/14)

[Author]

Replies