Rental Property: Passive Loss Carryover versus At-risk Loss Carryover

[aka51]

Background: I have a rental property. I actively participated in management/repair decisions but did not have 750 hours working on it a year (not a real estate professional).  So I believe this is still a passive activity.  Also, I down paid 20%. I have landlord insurance and rent it out for 100% of the year.

When I filed the tax report last year, which was the first year of reporting income on this rental property, TurboTax calculated my loss of 10k due to maintenance, interest, and depreciation. This year I directly asked Turbotax to transfer the data from last year.

Question: When I file the tax report in this year, I need to figure out how to carry over the 10k loss from last year to this year. In TurboTax, there are two checkboxes, I can choose one or both.

1. "I have passive activity real estate losses carried over from a prior year"

2. "I have at-risk losses carried over from 2022" 

If I choose 1, it will ask me for regular tax carryovers and AMT tax carryovers based on schedule E, which I believe is -10k. It will add this 10k to form 8582 directly

If I choose 2, it will ask me for regular tax carryovers on schedule E, which I believe is -10k. It will add this 10k to miscellaneous expenses as "SECTION 465(d) CARRYOVER".

I thought I should choose both option 1 and option 2. Because my loss is a passive activity, I should choose option 1. And my loss is at risk, so I should choose option 2 as well. However choosing both will add the carryover twice, which is -20k. Based on the final result, it seems that I should not choose both.

Can someone help me and instruct me on which option I should choose?

[DianeW777]

Yes, check both boxes.  You do have a passive loss carryover and you are totally at risk for this activity.  Exceptions would be funds received gifts or money that is not secured by anything.

In your case the regular and AMT carryover will be the same number because of the type of activity.  See the entry procedures below:

The following instruction should help you with the location to enter your carryover loss.  You must go into the rental property income section first, then follow the steps to enter your carryover loss.

1. Any passive activity loss (PAL) carryforwards allowed would be listed on your Form 8582, Worksheet 5 or 6, in your 2022 tax return as 'unallowed loss'.  If you have a PAL and it does not seem to be populated in your 2023 tax return you can take the following steps to enter it.
   • Use the magnifying glass to Search (upper right) > Type rentals > Jump to Rentals > Select Edit beside your Rental Activity  > Under Less Common Situations > Review Carryovers, limitations, at risk info, etc. > Continue to enter your passive loss carryover.  See the image below for assistance.

                                

[aka51]

Thank you so much for helping me out! I can find passive loss carryover based on last year's 8582.  But I have no idea on at-risk loss carry over. Specifically I have two questions,

1. Is at-risk loss carryover the same as passive loss carryover? Or it is totally different thing. The two are independent.

2. How to find the number of at-risk loss carry over based on last year's return?

[DianeW777]

Yes, the at-risk loss would be the same number. In the tax world, "at risk" simply means that the owner is personally liable for the losses. If you do not have any funds that you are not responsible for such as a gift, then you are at-risk for your investment in this rental property. It's very rare where a person is not completely liable for their investment, such as a mortgage that is a lien against the property you own.

@aka51