How do I zero out short-term rental expenses against income, to carry over loss into next year?

[drosensweig]

We have a property that is partially our vacation home, and partially a short-term rental. In previous years, we've hired a CPA, who told us we could count our expenses for this property against the income from the property, but any losses beyond that income could only be carried forward to a future tax year (rather than counted against this year's other income). I trust my accountant's assessment, but it is coming out completely different in TurboTax, with a substantial loss listed. How do I zero this out, leaving the loss as a carry-forward for next year instead?

[RobertB4444]

If you selected that you 'actively participate' in the rental activity then you are allowed to deduct up to $25,000 in losses against your regular income.  In order to actively participate in the rental activity you need to actively be making the management decisions for the property.  These include

• Approving new tenants,
• Deciding on rental terms,
• Approving capital or repair expenditures, and
• Other similar decisions.

If you are actively participating then the system is correct and you should take the loss.  If you are just paying a management company to make these decisions for you then you are not actively participating and you need to go back to the rental property and change that entry to make the losses be passive and carried forward.

@drosensweig 

[drosensweig]

I appreciate the advice. I do actively manage the Airbnb listing, make repairs, manage the lawn, all sorts of things, though we hire someone to clean between most guests. I wonder why my accountant, though, had told us that the best case scenario tax-wise was cancelling out all the rental income (not having capital losses to count against our jobs). I thought it was a rule for mixed-use properties, since we didn't buy it primarily as an investment.

[AmyC · Accepted solution]

If your personal use days go over the 10% or 14 days rule, then the losses are cancelled out and your CPA was right to not claim the loss.  It could be you didn't use the vacation part as much this year and do qualify.

Double check your entries for days rented and days of personal use. 

For more, see About Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Page 26 begins the vacation/rental section.

[drosensweig]

Thanks so much!

My personal use of the property amounts to more than 2 weeks, and more than 10%, of the total use days for the property, so I cannot claim any loss on this business beyond cancelling out the income. I think Turbotax was allowing further losses because I had put my carry-over losses from last year in the wrong place. When I fixed that, Turbotax zeroed out the losses anyway.

[Redlands463]

I have a similar situation. This was my first year renting out the vacation home and I had way more expenses than rental income. I see that the losses have zeroed out the income but will I be able to carry the remaining losses forward? I don’t see a carryover identified on the worksheet. 

[drosensweig]

@Redlands463 

I was also disappointed that TurboTax did not identify the losses on my tax forms, but I've noted the amount separately, so that I can put it into the carry-over losses field when I file my taxes next year. I added up the amounts that would have been deductible had I had sufficient income to offset them, and subtracted what TurboTax actually deducted, and it will go into a file for next year. If you, like me, use the property part-time for yourself and part-time for rental, make sure you're only counting the business proportion of your expenses rather than the total. As long as you keep the receipts, you should be fine carrying it over 

Btw, last year when I had a CPA do this for me, this was clearer on the forms: he listed the entire deductible amounts, rather than just the allowable portion, and put a large negative line item "[property name] adjustment" to zero it out. That adjustment became my carry-over losses this year. Wish TurboTax would do it like that, so I could see it on the form, and didn't have to do the calculations myself for next year! 

It occurs to me it's at least possible for TurboTax, which has this year's information, to port the losses to next year automatically even though they don't show it in this year's form — assuming you use them again. I don't know whether they do this, but watch for it to make sure you're not double-counting the losses.

Personally, I'm going back to my accountant. That will cost more, but it's worth it. Working with TurboTax was much more frustrating and time-consuming than I expected. I'm pretty sure I spent at least 30 hours, 10 or more of which was working with their support trying to get around their program glitches rather than figuring out anything directly related to my taxes.