USA Rental Real Estate Losses

[Mark_Randolph]

My question is on suspended passive activity losses from rental real estate.

The property generated a loss in 2016. However, because adjusted gross income was higher than 100K, the phase out rules kicked in and only a portion of the loss was deductible and the non-deductible portion carried forward to future years.

Assume the non deductible portion in 2016 was $3,000.

In 2017, the property once again generates a loss ($2,000 for example). Would the taxpayer be able to deduct $5,000 in 2017 because he is still entitled to deduct $25,000 each tax year (assuming non material participation and no other passive income)?
If so, would -$2,000 be shown on Line 21 of Schedule E and -$5,000 shown on Line 22?

Thanks.

 

[Drmdcpa]

The $25k is for material participation. If non-material participation then all should be suspended until one of the following occurs:

1. Material participation defined by property each year

2. Passive income is recognized

3. AGI drops below $110k

4. Entire disposition of the property

If they can take losses in excess of current losses, carry over losses are released to the extent they can take losses.

For example if the taxpayer has passive losses suspended either due to AGI or non-material participation and the following year AGI drops or they materially participate, they can take the prior suspended losses up to the amount available in that year as if the suspended losses occurred in that year.