Rental Property: Loss Carryover Double-Counting

[VolvicNaturelle]

While documenting carryover losses within Turbotax, it seems I run into double-counting issues. Can you help?

I have a rental property which generates Passive Activity Losses (PALs) on paper, which I take is very common after mortgage interest and, depreciation and other expenses. My losses are disallowed due to AGI restrictions but I want to make sure to record them correctly; they are "at-risk" to my understanding. Under Carryovers, I ticked both boxes (cf. below) that I have a PAL as well as at-risk losses.

It seems like Turbotax is double-counting my past losses: It automatically creates a Section 465d carryover expense (which increases the current tax year's loss), and also counts the previous years' loss within form 8582 in addition to the current year's losses.

How do I best deal with this situation? Am I supposed to tick only 1 box, either standard PAL or at-risk losses form 2023? Assuming all losses are "at-risk", would the two losses actually ever be different?

Thank you very much for your help!

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I followed the instructions provided by @DianeW777 to check both boxes. 
https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/rental-property-passi...

[DianeW777]

If you would like to send us a “diagnostic” file that has your “numbers” but not your personal information it would help.  If you would like to do this, here are the instructions:  (Don't forget to give us the state)

TurboTax Online:

Open your return -Go to the menu panel on the left side of your return and select Tax Tools. 

1. Then select Tools below Tax Tools. 
2. A window will pop up which says Tools Center.  
3. On this screen, select Share my file with Agent. 
4. You will see a message explaining what the diagnostic copy is.  Click okay through this screen and then you will get a Token number. 
5. Reply to this thread with your Token number and your state. This will allow us to open a copy of your return without seeing any personal information.  

TurboTax Desktop:

If you like, you can send a copy of your return that will be scrubbed to eliminate your personal data by using these steps:

1. Click on Online in the top left menu of TurboTax CD/Download for Windows
2. Select 'Send Tax File to Agent'
3. Write down or send an image of your token number and state then place in this issue.
4. We can then review your exact scenario for a solution.
5. Please also tell us any states included in the return. This is necessary for us to view the return.

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution. 

[VolvicNaturelle]

Thank you, I've submitted a copy. Token number (numbers in words and with spaces because editor removes it)

"135635 782076  79939-  22616116"

MA & NY

Grateful for any help or pointers!

[KeshaH · Accepted solution]

Thank you for sharing your token. It was very helpful to get a clearer understanding of your situation.

It's possible that you'd have a passive activity loss carryover and no at-risk loss carryover.

You'd have an at-risk loss carryover if the losses you've incurred on your rental property exceed your at-risk investment in the property. 

For example: If you have $50,000 at-risk investment and have a $70,000 loss, you'd have $20,000 at-risk loss carryover until you either sold the property or made an additional at-risk investment. 

The reason TurboTax is allowing a deduction of the full at-risk loss carryover you entered is because you've essentially told the program that you couldn't take these losses because you weren't at risk, and now you are at risk. If this were actually the case, you'd be able to deduct the carryover losses on this return (which would then be subject to passive activity loss rules).

It seems that you weren't actually able to take these losses in the past because of the passive activity loss rules, not the at-risk rules.

If your investment in the property has always been 100% at risk and your losses have never exceeded your at-risk investment, you shouldn't have any at-risk loss carryover since your losses would have never been limited by the at-risk rules. In this case, you can uncheck this box. 

@VolvicNaturelle 

[VolvicNaturelle]

<duplicate>

[VolvicNaturelle]

Thank you very much @KeshaH , very helpful answer.

It appears like I have a more fundamental misunderstanding regarding the "at-risk" carryover portion, could you confirm my below understanding?

Situation: I bought the property with a traditional mortgage, 20% down and made additional renovations. Let's assume the purchase price was 400k + 100k in renovations - I would be 500k "at risk" in layman's terms. Losses incurred thus far are 30k, far below the total investment and thus would not trigger the "at-risk rules" per the tax code. I should thus not have any "at-risk" carryover, and since my return from last year through TT also had a 465(d) carryover expense item - I have prepared that one incorrectly. 

Solution: I need to amend last year's return (untick box with at-risk), and then file the current year's return with the corrected last years' loss number equivalently with PAL only. Can I do this in one batch or is it recommended to wait for a few weeks in between? 

Thank you  

[DianeW777 · Accepted solution]

Yes, you are correct in your understanding. You are at-risk for the entire investment and would have no carryover amounts for that category. You do not need to wait for weeks in between. The 2024 return should be filed correctly with the right numbers and you can immediately amend the 2023 when you want.

As indicated by our expert @KeshaH you are at-risk for your entire investment. 

• Section 465 (d) carryover refers to the at-risk rules of Section 465 of the Internal Revenue Code.  Your losses are limited to the amount you have "at risk" in the activity.  A loss that was disallowed because of the at-risk rules is generally treated as a deduction from the same activity in the following tax year (a carryover).

@VolvicNaturelle