Help please in learning how passive losses can offset Cap Gains.
I watched Brandon Hall's great #45 Daily Smart Tax video but my Turbo Tax seems to have a different opinion.
Form 8582 calculates Passive loss Limitations.
I have rental homes with PM but active participation. Their net loss was $11,452
I have DSTs and LP with total passive participation. Their net loss was $29,319
Turbo Tax separated the two and both had net losses.
My AGI was low enough to allow up to $21,805 in deduction, but…
The rental homes loss was less than the passive-passive loss so it was used to compare to the $21805 to reduce income by the lower value of $11,454 which was placed on the 1040
Part III goes on to calculate “Total Losses Allowed”
It sums the net income of the active and passive, passive activities on Line 10
Then Line 10 adds this to Line 9 which was the overall net of only the smaller active passive loss. It call this the “TOTAL losses Allowed” and to see instructions on how to report on your 1040? Turbo Tax evidently didn’t understand the instructions either because I can not find where it is used. Instructions say “use parts IV through IX and related instructions…” First I don’t have a Part IX on my Form 8582
Looks like the $29,319 will be carried over to next year. But why can't is get my full $21,805 deduction this year??
It appears as if you are receiving the special allowance for active participation:
There is no special allowance for the other activities you mentioned.
there is a special allowance of up to $25,000 for passive losses from rental real estate activities if you actively participate and if your adjusted gross income before this loss is $150,000 or less. the special allowance does not apply to non-real estate passive losses. those losses are suspended until you have passive income or dispose of the non-real estate activity.
losses from publicly traded partnerships (PTP or MLP) are treated differently. each activity stands on its own. losses whether rental or other are suspended until that partnership either has offsetting income or is disposed of. income from one PTP/MLP can not be used to offset the loss of another. (this refers to line 1, 2 and 3 on the k-1)
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