Rental Expense Entries being changed by the program

[RichLeja1]

I have a rental property and have entered both the income and expenses.  For some reason, the program is arbitrarily changing the expense entries to exactly match the rental income.  There is no explanation for this in the program.  I had to discover it.  Does anyone know why this is happening?  I don't mind not being able to claim a loss.  But, the program should tell you when and why it is changing your entries.  

[MonikaK1]

If you have entered more rental expenses than rental income in TurboTax, and you are not seeing a net loss on your return, it may be because your income is higher than the limit for claiming a loss on rental real estate when it exceeds any other passive income. 

As a general rule, rental properties are, by definition, passive activities and are subject to the passive activity loss rules. These rules are quite complex. In general, the passive activity rules limit your ability to offset other types of income with net passive losses.

But the good news is there is an exception: If you actively participate in a rental real estate activity, you can deduct up to $25,000 of your rental loss even though it’s passive. To actively participate means that you:

• own at least 10% of the property, and
• make major management decisions, such as approving new tenants, setting rental terms, approving improvements, and so forth. (No, you don't have to mow the lawn or answer middle-of-the-night phone calls from tenants about a backed-up toilet.)

But this exception phases out as your income rises.

• If you have modified Adjusted Gross Income over $100,000, the $25,000 rental real estate exception decreases by $0.50 for every dollar over $100,000.
• The exception is completely phased out when your modified adjusted gross income reaches $150,000.

See this TurboTax article and IRS Publication 527 for more information.

Check your entries in the Rental interview as well, to ensure that they are correct.

You can preview your return before filing to find out how your taxes were calculated and to view the forms that TurboTax has prepared from your entries. See here for details. 

[Carl]

Reasons this will occur:

1) You are claiming less than 100% business use of the property from the time it was placed in service.

2) You are renting to a related person and/or renting at less than FMRV.

3) You claimed any personal use days after the property was converted to rental.

There's more which I can't recall right now. But those are the top three reasons.

[RichLeja1]

What a wonderful explanation Monika!  I had no doubt that there was a reason for it.  I actually changed the entry from QBI to passive.  So, this explains the reduction to zero.  This is what I thought was appropriate.  

However, the way the program went about changing it was weird and confusing.  I entered my expense values and the program changed my entries (proportionally) in Schedule E to make the outcome zero (equal to the income).  Contrary to other places in the interview, it didn't tell me it was doing this.  I had to actually look at the 1040 form (Schedule E) to see that it had been capped and the entries changed.  By contrast, the state tax limit section has a pop up that clearly shows that the cap has been done and a link to the tax code section so that you can see what has taken place.  The rental section has no such alerts.  Someone should tell the programmers to add this for clarity.  But, again, I really appreciate the explanation!