Calculating total passive real estate income in a portfolio (2017)

[ABS]

I am amending a 2017 return and noticed that Turbo Tax was showing positive passive real estate income in the rental section of the return even though combined all my rentals were running a net loss. 

One rental made $4K for the year while all others lost $12K combined, why are my passive loses not offsetting my passive income? Married filing jointly with AGI> $150K if that helps.

[Anonymous]

Any passive loss carryovers from prior to 2017.   check out form 8582.   line 16 should equal line 15.  if not check out your input and 8582 worksheets.   I would agree that losses should offset the income.     

[Carl]

I'm wondering if you're just mis-reading line numbers. I have that happen myself sometimes. Basically, if you have an amount on line 25 of the SCH E, that's your loss for the current tax year.

[Carl]

Oh yeah, one other thing too. If you have more than 3 rentals, then that means you have more than one SCH E. In that case, line 24/25 (whichever applies) only applies to the properties listed on that specific SCH E. So if the property that has a positive cash flow is the only property listed on that particular SCH E, then that particular SCH E will show a taxable gain on line 24.

[ABS]

Line 15 does equal Line 16 on Form 8682, so does that mean I was misreading something and my passive losses are offsetting the passive income? Do I get to carry forward the remaining losses to 2018?

Thanks

[Carl]

As I'm sure you know, each rental is it's own "like-kind" activity to the other rentals. With like-kind activity, the passive losses of one activity will offset the gains of any of the other like-kind activities.  So if you have one rental that shows a $1000 taxable gain and the other three rentals show a $1000 loss each, your total among those like-kind activities will be a $2000 loss.  For rental property the losses just accumulate with each passing year as they are carried forward. So in my example you would add that $2000 loss to any carry-forward losses from last year.

It is not common for rental property to show a gain "on paper" at tax time. In fact, it's more common for rental property to show every increasing losses with each passing year. This is especially true if there's a mortgage on all properties. But if you have for example, one property paid off which means there's no mortgage interest to deduct, that one property very well could show a gain that will start offsetting losses on the other properties.

I'm in that situation now. Paid off one of my three properties a few years back. That one property started showing a taxable profit in the years after that, which took a few years to use up all my losses on the other two properties.Because of that I'm now showing a taxable gain on my rental income. But I don't have a problem with paying taxes on money I get to actually keep.