I am a real estate professional and fill jointly with my husband. For years, my accountant only treat my rental properties with unlimited rental loss deduction. He restricted my husband's properties by the Form 8582. I didn't find out until this year that the rental loss of my husband's properties can also be fully deducted as long as the total loss is less than $25k. So we have the correct rental loss deducted this year... My questions is, could we do an amendment to remove the PAL for the past 3 years, or it is an irrevocable option that we have to wait to recover the loss until the day we sell the property?
TIA!
You can amend but be aware that the exception for deducting the $25k against non-passive income phases out for married filing joint modified adjusted gross incomes between $100k - $150k. After 150k, the is no deduction allowed and losses carryover to future years or when you sell the property.
IRS Pub 527
Thank you for the response! I think the $25000 deductible is the special allowance for for the real estate professional and their spouse who files tax together with, and it is not subject to the income (150k) restrictions? The 100k-150k phase out restrictions are for the other properties owners (non real estate professionals). We are considering amendment is because we didn't know and didn't use the "special allowance" previously for my husband's properties.
The two exceptions are:
1. You are a real estate professional who materially participates in your business, your passive real estate losses can offset ordinary income.
2. If you actively participate in your business (real estate investor), you can deduct up to $25K of those losses against nonpassive income, subject to the modified adjusted gross income phase out. If phase out applies, then you can deduct up to $3k against non passive income.