On our 2017 tax return, our tax preparer calculated a loss of around $2000 for our rental property. We didn't know enough at the time to check this over ourselves, but looking at it now, it seems that he didn't 'use' this loss in any way - it wasn't offset against our other income (we earned under $150k and we were 'active participants') and he also didn't attempt to carry the losses forward (there's no Form 8582.)
This looks to me like he messed up? We have reached out to him with this question but he hasn't responded yet. Is it possible that he *didn't* make an error here? If he *did* make an error, what's the best way to deal with this now? Do we need to amend the return, and if so, is it better to retroactively apply the loss for the 2017 tax year or to carry it forward? Is it even a choice or would one be required? (I'm not super confident in this guy for a few other reasons - we haven't used him since - so that's why I'm asking y'all and not him!)
TIA!!
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To add: the losses were reported on Schedule E, line 21 (as -$2000), but line 22 is a zero.
Were there personal days (see lines 2 on Schedule E)?
If so, was 2017 the first year of the rental? Was it converted from 100% personal use to 100% rental use? Or was it back-and-forth between personal and rental days?
@AmeliesUncle , thanks for your response. Schedule E lists 365 rental days and 0 personal days. 2017 was the first year of the rental.
Then as you say, something seems wrong. Are you SURE there isn't a 8582? With no personal use, I can't imagine computer software not forcing a 8582 if the the deduction is not allowed (Line 22 is zero when there is a loss on Line 21).
Is there a Form 6198 with the tax return???
Ideally, if there is an error the prior tax preparer should amend it for free. Otherwise, you could amend it yourself, but that takes more time and money.
Check your 2017 tax return package and see if there's an IRS Form 8582 in there. Check line 16 of the 8582, and it shows the losses allowed "ONLY" against the passive (rental) income. Then Worksheet 5 on page 2 will show unallowed losses, if there are any, that get carried over to the next tax year.
THe 8582 can for some, seem complicated. The trick is to use the instructions for that form at https://www.irs.gov/pub/irs-pdf/i8582.pdf and basically, ignore or line through all that *does* *not* apply to your specific situation.
Thank you so much everyone for your replies. I am really sure there was no 8582 - not in the pdf copy or in the hard copy that the tax preparer shared with me. There's also no Form 6198. We (thankfully) had a different tax preparer for 2018, and they *did* include a Form 8582, so I know what it looks like - I'm definitely not just missing it in the 2017 return!
This tax preparer also missed another form when doing our return (Form 8938 - we only moved to the US a few years ago so have assets abroad). At the time, we didn't even know about this form. He did tell us about the FBAR (which we filed ourselves) but never mentioned Form 8938 - we only found out about it later (and thankfully before the IRS realized we were supposed to have filed it). Completely missing forms like this from a return does make me wonder if he isn't even using tax software!
Despite Form 8938 being such an important form with high non-filing penalties, I was met with radio silence when I asked him to amend and add that missed form. I had to amend myself (thankfully it's an easy form to fill out as it's information-only). No response from him yet on this new issue, either - hopefully he's willing to fix it. If not, I'll have to think about whether it's worth the time, effort, and (if I get professional help, which I probably should) expense of trying to do without him just for the future tax savings on that $2000 of loss. Super frustrating.
If nothing else, this makes me feel better that I'm now using TT for my returns!
@turb0tax_newbie wrote:If nothing else, this makes me feel better that I'm now using TT for my returns!
Just to warn you, TurboTax can be rather problematic and has many errors and misleading statements. So don't feel too secure just because you are using TurboTax.
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