Vacation Home Loss Limitation carried forward, but still not applied?

[go_dores]

OK first some background:

• my wife and I have had a vacation rental property for several years.
• In 2023, we used it for personal use for more than 14 days; therefore we were not allowed a loss
• In that year, in the Schedule E Worksheet, a bunch of stuff showed in column (d) Vacation Home Loss Limitation.  This was exactly the amount to reduce our expenses to the point where we had an income of exactly $0 on the vacation rental.
• My understanding as of last year was that these "Vacation Home Loss Limitation" amounts would roll over and potentially apply this year

All that makes sense to me.  Now this year I am doing my taxes and, sure enough, I do see those amounts carried forward from last year.  There is stuff in row 18(c) Depreciation carryover and row 19(f) Operating Exp carryover.  And the amounts match.  All makes sense.

This year we used the home for less than 14 days and a loss is allowed.  And this year's expenses apply in full without getting partially allocated to the "Vacation Home Loss Limitation" column.  So there is a loss.  Again, makes sense.

Finally my question.  I see that the carryovers from last year (rows 18c and 19f) are all fully allocated to "Vacation Home Loss Limitation" (again) and basically don't apply to this year.  i.e., they seem to be getting carried forward again.  Is that expected?  Why wouldn't they be included in the expenses this year?

Thanks

[MaryK4]

Yes, the vacation home loss limitation carryforward only applies to years that the vacation home losses apply.  

[go_dores]

@MaryK4 ???  "only applies to years that vacation home losses apply" -- I don't understand what you mean.

To repeat some of the content of my original message, 2024 is a year where vacation home losses apply.  I have a loss and it does apply.  So you are saying that the carryover should apply?  Please clarify. 

[AmeliesUncle]

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@go_dores wrote:

This year we used the home for less than 14 days

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[EDIT:  My original comments below) are phrased really badly and are therefore misleading; see comments later for clarification].

Because this year was used for personal use for 14 days or less, it doesn't fall under the "vacation home" rules for tax purposes.  That is why the "vacation home" carryovers are not being used.

If the home is used for 15 or more days in a future year, that is when the "vacation home" losses may potentially be used.

[go_dores]

OK thanks @AmeliesUncle .  That's strange, because that precise thing (used for more than 14 days) is why the loss couldn't be taken in the year it occurred.

[go_dores]

I'd love to clarify this.  I think I am being told the following:

• In 2023 I used the home more than 14 days for personal use.  And for this reason, I could not take a loss.  The loss carried over to 2024.
• In 2024 I used the home less than 14 days for personal use.  And for this reason, I could not use the loss carryover.

@AmeliesUncle is that what you are saying?

Is there anyone else who wants to weigh in  on my original question?

[AmyC]

About Publication 527, Residential Rental Property  addresses your situation and has worksheets to determine allowable loss. Begin with page 28 which states:

Used as a home and rented 15 days or more. If you use a dwelling unit as a home and rent it 15 days or more

during the year, include all your rental income in your income. Because you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use, as described earlier in this chapter under Dividing Expenses. The expenses for personal use aren’t deductible as rental expenses.

If you had a net profit from renting the dwelling unit for the year (that is, if your rental income is more than the total

of your rental expenses, including depreciation), deduct all of your rental expenses. You don’t need to use Worksheet 5-1.

However, if you had a net loss from renting the dwelling unit for the year, your deduction for certain rental expenses is limited. To figure your deductible rental expenses and any carryover to next year, use Worksheet 5-1.

Reference: Topic no. 415, Renting residential and vacation property

[AmeliesUncle · Accepted solution]

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@go_dores wrote:

I'd love to clarify this.  I think I am being told the following:

• In 2023 I used the home more than 14 days for personal use.  And for this reason, I could not take a loss.  The loss carried over to 2024.
• In 2024 I used the home less than 14 days for personal use.  And for this reason, I could not use the loss carryover.

@AmeliesUncle is that what you are saying?

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Looking back at what I said, that was what I said, but unfortunately I worded it in a very wrong way.  However, you said you had a loss this year again, which is why the carryover is not being used.  They can only be used against a profit.

There are TWO kinds of losses that can be involved for a rental ("vacation home" losses, which you had the first year, and "passive" losses, which you had the second year) and 14/15 day threshold largely dictates which one applies.

[go_dores]

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@AmeliesUncle wrote:

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However, you said you had a loss this year again, which is why the carryover is not being used.  They can only be used against a profit.

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 @AmeliesUncle thank you, this is what I was missing and this makes sense.  I appreciate you circling back and rewording it for me.