I added a second rental property in 2022. The first property has accrued passive losses over the years on Form 8582 since I do not meet the income requirements to take an actual loss. I converted the 2nd property from personal to rental property use in July 2022. The 2nd property should also show a loss, but instead, no matter how I modify the expenses, the Schedule E will not show a loss. Rather, it keeps adjusting the depreciation deduction to result in a net zero profit. The depreciation form shows the full authorized depreciation amount. I have adjusted numerous input settings to troubleshoot and cannot determine why the Schedule E will not produce a loss to be transcribed to the Form 8582. When I attempted a scenario in which the 2nd property was rented for the entire year, it created the loss as expected. Unfortunately, this scenario generated numerous additional questions concerning the depreciation amount and I cannot determine whether that played a part. Should I assume that I am missing a hidden tax rule and losses are not allowed in the year you convert a property from personal use to biz OR is this likely a system error? Any thoughts?
