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rsherer
New Member

Why won't Turbo Tax net my passive rental property losses with my interest income from high yield certificate of deposit that is also considered passive?

 
9 Replies
MikeinSC
Level 4

Why won't Turbo Tax net my passive rental property losses with my interest income from high yield certificate of deposit that is also considered passive?

Interest income is investment income, not passive.

 

Edit - the interest is portfolio income.  

rsherer
New Member

Why won't Turbo Tax net my passive rental property losses with my interest income from high yield certificate of deposit that is also considered passive?

My Rental Property is an investment and it's considered passive.  Confused

MikeinSC
Level 4

Why won't Turbo Tax net my passive rental property losses with my interest income from high yield certificate of deposit that is also considered passive?

Might be good to do a little reading on this vs trying to explain - read this article.

ColeenD3
Expert Alumni

Why won't Turbo Tax net my passive rental property losses with my interest income from high yield certificate of deposit that is also considered passive?

No.  Passive losses are only offset by passive income, not income from stocks, bonds, interest and dividends. There are limited partnerships that might pass passive income through a K-1.

 

According to the IRS:

  • Passive: Rentals and businesses without material participation. A limited partner is generally passive due to more restrictive tests for material participation. As a result, limited partners will generally have passive income or losses from the partnership 

Please see this link for more information: LINK

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rsherer
New Member

Why won't Turbo Tax net my passive rental property losses with my interest income from high yield certificate of deposit that is also considered passive?

I hear what your saying and up until now I have followed that guidance. My confusion now stems from the below comments I read in another publication. 

 

Portfolio income is considered passive income by some analysts, so dividends and interest would be considered passive.

 

As with active income, passive income is usually taxable. Portfolio income is considered passive income by some analysts, so dividends and interest would therefore be considered passive.

ColeenD3
Expert Alumni

Why won't Turbo Tax net my passive rental property losses with my interest income from high yield certificate of deposit that is also considered passive?

 The reason, basically, that the IRS says "no".

 

Generally, you can use losses from passive activities only to offset income from passive activities. You cannot use passive activity losses to offset your other income, such as your wages or your portfolio income. Portfolio income includes gross income from interest, dividends, annuities, or royalties that is not derived in the ordinary course of a trade or business. It also includes gains or losses (not derived in the ordinary course of a trade or business) from the sale or trade of property (other than an interest in a passive activity) producing portfolio income or held for investment. This includes capital gain distributions from mutual funds (and other regulated investment companies) and real estate investment trusts.

 

PUB 550

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MikeinSC
Level 4

Why won't Turbo Tax net my passive rental property losses with my interest income from high yield certificate of deposit that is also considered passive?

The only time this is considered passive income is for the Foreign Tax Credit, which is completely different definition of what passive income is.  If you have foreign interest and dividends, it will be considered passive when computing that credit. 

 

DaveF1006
Expert Alumni

Why won't Turbo Tax net my passive rental property losses with my interest income from high yield certificate of deposit that is also considered passive?

According to this link from IRS.gov,  interest and dividends is passive category income. Real Estate activities are Passive Activity Income, which  is Income in which the taxpayer does not materially participate or, subject to certain exceptions, a rental activity. For IRS purposes, they regard the two incomes as separate events and won't one to offset the other.

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ColeenD3
Expert Alumni

Why won't Turbo Tax net my passive rental property losses with my interest income from high yield certificate of deposit that is also considered passive?

Here is the link for passive category income: passive category

 

 

 

 

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