Solved: Passive activity loss from rental properties in AZ
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Returning Member

Passive activity loss from rental properties in AZ

I am a resident in CA and am filing nonresident in AZ for rental properties owned in AZ. On the AZ nonresident tax return in 2016 (being the first year filing in AZ), we had passive losses from these rental properties. So we did not pay any AZ taxes. Do these passive losses carryforward to 2017 tax return (similar to Federal/CA) except that it only bases on AZ sources?  Does the allowed and unallowed loss to each property in 2017 calculate similarly to the Federal/CA calculation?  There was not any passive loss carryforward schedule from my 2016 AZ nonresident return. Please advise.  Thanks.

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Level 9

Passive activity loss from rental properties in AZ

AZ pretty much follows the fed when it comes to rental properties other than the depreciation.  They have passive activity loss limitations to extent of income.  Stick with basic depreciation and they will be similar. Issues exist if you have other properties though in other states as federal allows losses from one property to offset gains from another property while non-resident states only allow that states property.  TT should handle this situation for you.

You will also file a return if your income from rental exceeds the filing requirements. There is some bad information about the net meeting requirements, that is not so.  It is gross income threshold.

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7 Replies
Returning Member

Passive activity loss from rental properties in AZ

I would greatly appreciate it if someone can help with my question.  Thanks.
Returning Member

Passive activity loss from rental properties in AZ

Thanks, maglib.
Level 9

Passive activity loss from rental properties in AZ

you are welcome.  I own some rentals and am moving in a few years out of the state.  I've been trying to get advice.  Many accountants just say don't report it and wait to get audited (rule of 50% they call it, if 50% chance you can get away with it).  Others say, it must be reported.  With the fact that the tax authority knows who owns what and the fact that the tenants report to the state their rent, I would never not report amounts.  I'm fairly in the rule of 100%, do the right thing, always.
Returning Member

Passive activity loss from rental properties in AZ

I agree with you. Thanks.
Level 9

Passive activity loss from rental properties in AZ

AZ pretty much follows the fed when it comes to rental properties other than the depreciation.  They have passive activity loss limitations to extent of income.  Stick with basic depreciation and they will be similar. Issues exist if you have other properties though in other states as federal allows losses from one property to offset gains from another property while non-resident states only allow that states property.  TT should handle this situation for you.

You will also file a return if your income from rental exceeds the filing requirements. There is some bad information about the net meeting requirements, that is not so.  It is gross income threshold.

View solution in original post

Level 2

Passive activity loss from rental properties in AZ

As maglib had stated, "Issues exist if you have other properties though in other states as federal allows losses from one property to offset gains from another property while non-resident states only allow that states property.  TT should handle this situation for you."

I have that issue.  How does Turbo Tax address this?  I live in Illinois, have a farm that is rented in Wisconsin, have a house that is rented in Arizona.  Wisconsin Farm has income and no losses.  Arizona Rental has income but losses exceed income.  Federal allowed me to deduct this Arizona Rental loss but now I have an issue.....how do I show these as suspended losses on the Arizona returns?  Some losses go back to 2014.

 

 

Level 15

Passive activity loss from rental properties in AZ

When dealing with rental real estate is is "extremely" uncommon to show a profit *ON* *PAPER* when you file your taxes each year. This is especially true if there is a mortgage on the property. In fact, it's much more common for rental property to show ever increasing losses with each passing year, that just get carried forward to the next year. Those losses continue to increase and accumulate with each passing year. They never expire.

You don't actually get to 'realize" those losses until the year you sell or otherwise dispose of the property.

Generally, the mortgage interest, property taxes and the depreication you are required to take by law, will all by themselves exceed the amount of rental income received. Add to that your other deductible rental expenses such as insurance, repairs and maintained costs, and you're practically guaranteed your allowed rental deductions will exceed the rental income. Since rental income and expenses are all passive and passive expenses can only be deducted from passive income, that's why you have ever increasing losses that just get carried forward year to year.

But in the year you sell the property, all those carry forward losses are first deducted from any taxable gain realized on the sale. Then if you still have more losses to deduct they are deducted from your other "ordinary income".

Now depending on your AGI for the year, your deduction from ordinary income could be limited to $3000 for that tax year. But that's fine because you'll still be able to carry forward the unallowed losses and deduct each year until they're all used up.

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