Just so I could understand how for Passive Activity losses work, I created a simple example in TT.
Year 1
Interest: 11,000
Rental loss: 28,000
Taxable income: -14,000
Unallowed loss: -3000 (Will be carried over to year 2)
Itemized deductions: 50,000
All that was required to get taxable income to zero was a 10,000 loss. Instead -14,000 vanishes and doesn't become a useful asset. It doesn't get carried over to next years Form 8582 the way unused 3000 capital losses get carried over for Schedule D income/losses.
I guess in this case the tax payer has a NOL and must file the appropriate paperwork. Is this correct?
