Does turbo tax automatically carry forward rent income loss from this year to the next? I will be earning higher rent next year and hope to use that to deduct excess loss

[av16]

If turbotax doesn't automatically do this, how do I go about the process?

[DawnC0 · Accepted solution]

Yes, if you used TurboTax this year and have a suspended loss, you will be able to use the suspended loss next year when you have passive income.  You don't need to take any additional steps now.  

A passive loss carryover is created when you have more expenses than income (a loss) from passive activities in a prior year that could not be used that year. Instead, the passive loss is carried forward to future tax years to offset any passive income. The loss continues to be carried over until you use up the entire amount.

Passive Loss Carryovers can be created by any passive activity. Most come from rental properties (Schedule E). If you used TurboTax to file your tax return last year, any Passive Loss Carryovers would appear on Schedule E Wks - Carryforward to 2017 Smart Worksheet (final page - note this is a TurboTax supplemental schedule and not an IRS form).  If you had more than one property, or you didn't use TurboTax last year, Passive Loss Carryover appears on Form 8582.  

When you prepare next year's return with TurboTax and show passive income, TurboTax will apply any suspended losses available from this year's tax return.  

[cherry532]

what if I have suspended loss from 3 years ago? how can it be used to offset gain in the future tax return?

[Carl]

First, some terminology clarification.

There is no such thing as "rent income loss". You don't "lose" rental income. What you have is where your rental losses exceed your rental income, and this is not only perfectly normal, but expected with each passing year - especially if you have a mortgage on the property.

The program automatically carries forward your losses every year, and you'll see that those losses that get carried forward will actually increase with each passing year. While not impossible, its not common for an increase in rent to result in no losses in the current year - unless you damn near double the rent and the tenant actually stays and pays it.

Basically, when you take into account the depreciation you're required to take by law, along with the deductible expenses of mortgage interest, property taxes and insurance, those alone will usually be more than you collect for rent the entire year. Add to that your other allowed rental expenses (repairs, maintenance cost, etc.) and you're practically guarantted to never show a taxable profit on rental income. But of course, that doesn't mean it would never happen.

Once your current year depreciation/expenses are deducted from current year rental income, if you still have any taxable rental income remaining then any carried over losses will be deducted from it to get your taxable rental income to zero. Anything remaining gets carried over.

Normally, you can't "realize" your losses until the year you sell the property. In that year it works like this:

 - First, the total of all depreciation taken is added to your sales price. This determines your total taxable gain.

 - Next, all your carry over losses are deducted from that total taxable gain.

 - If this gets your total taxable gain to zero and there are still losses remaining, then the remaining losses can be deducted from "other" ordinary income. (Such as your W-2 income) up to a maximum of $3000 a year each year, until those losses are all used up.

[cc11jimmy]

Thank you! I have a question regarding the last section when rental property is sold. "Next, all your carry over losses are deducted from that total taxable gain."

Does this mean carry over losses can be used to offset the capital gain from selling the property?

[SusanY1]

The carryover (sometimes called "suspended") losses for the same property can be used to offset the gains on the property.  

@cc11jimmy

[cc11jimmy]

Thank you so much the reply. I was googling and noticed this other response. What happens if I have 2 rental properties and only sold one of them this year. Both are reported on Schedule E. Would I have to wait until both are sold in order to deduct the loss?

"If you own only one rental property and sell it, then you can take the deduction because that property is your entire rental activity. The same holds true if you own several properties and treat them each as separate activities for tax purposes. However, many landlords with multiple properties elect to combine them as one activity for tax purposes. In this event, if you own several rental properties and only sell one, you can't take the deduction because you won't have sold "substantially all" of your interest in your rental activity."

https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/i-have-carry-over-los...

[SusanY1]

Yes, if they are reported on the same Schedule E the loss will continue to be carried forward. The passive activity has not ceased yet in this case, which is when the loss is realized.

@cc11jimmy

[AmeliesUncle]

---

@cc11jimmy wrote:

The same holds true if you own several properties and treat them each as separate activities for tax purposes.

However, many landlords with multiple properties elect to combine them as one activity for tax purposes.

---

It is unlikely that you "grouped" them for purposes of Passive Losses.  Assuming you did not do group them, each is separate and when one is sold, that loss is released.

[tax2016qz]

No it's untrue! I have just found out that Turbotax doe not auto input rental loss carryover (regular tax carryove) to next year, it only auto input AMT carryover automatically. When you start new tax year and input rental info, the "Regular Tax Carryover box from  (Sch E) is empty. You have input the loss manually. The loss is calculated and number is there already I do not understand why TurboTax doe not out in the number automatically. I have just found out that for the last 4 years Turbotax did not carryover my rental loss, I have over paid tax by $2000!

Should Turbox compensates my loss?

[tax2016qz]

Please see my post below:

No it's untrue! I have just found out that Turbotax doe not auto input rental loss carryover (regular tax carryove) to next year, it only auto input AMT carryover automatically. When you start new tax year and input rental info, the "Regular Tax Carryover box from (Sch E) is empty. You have input the loss manually. The loss is calculated and number is there already I do not understand why TurboTax doe not out in the number automatically. I have just found out that for the last 4 years Turbotax did not carryover my rental loss, I have over paid tax by $2000!

Should Turbox compensates my loss?

[MarilynG1]

@tax2016qz  The Rental Loss Carryover should populate for you each year you import last year's data (unless you also used the property partly for personal use).

If if did not, you can Amend your Prior Year Returns.   

[stewy]

I agree that Turbo Tax isn't automatically carrying forward rental losses. I always assumed it was but now that I'm learning what to look for I do not see anything on the worksheets or form mentioned above.

One of my properties has shown a lost every year I've owned it. (less each year, this year's loss is the smallest ever at around $900)  Previously several thousand for about 15 years.  So I figure I should be seeing something in the neighborhood of $20 to $40k on this property. I see nothing mentioning the address or any such large loss carry over in the forms or under "Loss Carryforward worksheet" in search through my forms.

The largest losses are from long ago, much longer than I can revise tax returns for.

What can I do to capture these losses?

[DianeW777]

Gather your returns where you show unallowed losses on Form 8582. Use the unallowed losses from each year and add them together to enter them on your 2020 tax return. If you take the first year of unallowed losses and then add each year you should not be doubling any figures. Just be sure to check that as you combine the totals.  Once you have the correct amount you can enter that carryover loss amount using the steps below.

• Use the Search (upper right) > Type rentals > Select Edit beside your Rental Activity  > Under Less Common Business Situations > Edit Carryovers, limitations, at risk info, etc. > Continue to enter your passive loss carryover.

Phaseout Rule: The maximum special allowance of $25,000 ($12,500 for married individuals filing separate returns and living apart at all times during the year) is reduced by 50% of the amount of your modified adjusted gross income that’s more than $100,000 ($50,000 if you’re married filing separately). If your modified adjusted gross income is $150,000 or more ($75,000 or more if you’re married filing separately), you generally can’t use the special allowance. This is because the special allowance is reduced to $0 since the modified adjusted gross income is over the $100,000 amount.

The full remainder of PAL carryovers will be allowed in the year of sale or disposition.

[MrVette]

I've been using Turbo Tax Premier for many years and the loss is not carried over by the program from prior years. It always asks me to enter any passive activity losses from prior years. Thus I have to research previous returns to find and enter the answer. So why doesn't this carry over automatically like experts say it does?