Can someone refer me to the specific IRS publication which states that one is REQUIRED to take the "special allowance" (up to $25K) for rental losses?

[Lisa995]

You're not required to take any "special allowances"...maybe youre asking the wrong question.

[TaxGuyBill · Accepted solution]

As Lisa said, you can't pick and choose to take it or not.  It is required if you are "active" (most rentals owners are).

Tax Code Section 469(a) disallows passive losses.  However, 469(i) says "subsection (a) shall not apply to that portion of the passive activity loss … which is attributable to all rental real estate activities with respect to which such individual actively participated in such taxable year” (then it limits the loss to $25,000).

https://www.law.cornell.edu/uscode/text/26/469#i

If you were "active", you are not allowed to say that you were not, just because you want to defer the losses.  That would be tax fraud.

[specialallowance]

Thanks, Bill.  What you're stating makes sense, but I'm still seeing the words "allowed", vs. "required" within the link that you provided.

[specialallowance]

In other words, if it's "allowed", does that mean the same thing as "required" to the IRS?  If so, I find that quite odd.

[TaxGuyBill]

In most cases, it does mean required.

However, even if it was not required, if it is "allowed" there would be no provision to carry forward any expenses because it was not "disallowed".

[specialallowance]

Thanks, Bill.  I think I see your point, when looking at the 8582 form.

[Rachel_W]

I cannot find where it specifically states that you are REQUIRED to take the "special allowance" for rental losses, but I believe you are looking for IRS Publication 925, Page 4: https://www.irs.gov/pub/irs-pdf/p925.pdf.

[specialallowance]

Thanks, but it's not in that publication.  

[specialallowance]

The reason I don't want to take it is because it would be a lot more useful in other years.  And yet, there seems to be an assumption that it's required as soon as one is qualified, without any specific wording to that effect.

[Rachel_W]

@specialallowance Maybe I am misunderstanding your question?  Pub 925 discusses the special allowance but like I said, I cannot find anything that specifically states you are required to take the allowance.

[Rachel_W]

@specialallowance I don't think it's a "choice" that you make in this scenario.  It is called a "special" allowance because it is an exception to the rule that you cannot deduct passive losses.

[specialallowance]

I sincerely appreciated the response, and I think you're understanding my question, now.  I've seen other postings which state that you're required to take it, but those postings are not backed up with any IRS reference.

[specialallowance]

So, I guess the question remains - can I just decline to take the $25K special allowance for a particular year?

[Lisa995]

You cant pick and choose when to use your losses....Im not sure I understand what you keep referring to as "special allowance"