Loss limitation on form 8582 line line ignored on schedule E

[shochberg]

I own a vacation home on which I have an operating loss.

TurboTax desktop is correctly using Form 8582 part II to determine that because of my income, I cannot use any of the loss this year.  Line 9 reads 0.

But then back on Schedule E, Line 22, the limitation is ignored and the entire loss is allowed.  And the loss then shows up on Line 8 of the 1040.

This appears to be a bug in TurboTax.  Am I correct?

[ThomasM125]

I'm not sure about the Form 8582, but you can deduct a rental loss up to $25,000 if your income is under $150,000.  

[shochberg]

That's the problem.  Our income is over $150K but TurboTax is still deducting our loss.

[Mike9241]

Rental real estate is a passive activity for all but real estate professionals. Passive income and losses from all activities are carried to Form 8582 to determine allowable losses, if any, which are reported on line 11. This public forum has no access to your return. Review Form 8582 to make sure the proper numbers are flowing from other forms and schedules. if line 11 is zero nothing should be following to schedule E.    

part VIII is where allowable losses are computed which likely should be zero. .  

[shochberg]

Yes, you have correctly described what should happen, however:

Form 8582 Line 9: 0

Form 8582 Line 11: 0

Form 8582 Part 8 Allowed Loss: 0

Schedule E, line 21: Income of (loss) -1489

Schedule E, line 22: Deductable Rental Real Estate Loss: -1489

If this is indeed a bug, which you seem to imply it is, where do we go from here?

[shochberg]

Any answer on this?  Is there any way to actually talk to TurboTax since this appears to be a software bug?

[shochberg · Accepted solution]

Here is the answer.

The rule cited by Mike above does not apply in all cases. Rental income is not always a passive event.

In this particular case, the rental income was from a vacation home.  Under IRS rules, rental income from a vacation home is not a passive activity if the owner uses it for vacation (not maintenance) purposes for the greater of either 14 days or 10% of the days it is rented at fair market value. 

If it meets that requirement, then the ordinary loss is deductible in the current year. It is not limited as Mike and I said, and form 8582 does not come into play (except for calculating carried depreciation.) 

In my case, in 2024 we used the property for only 13 days, so we did not meet this exception to the passive loss rule and so could not deduct our loss, but in 2025, we used it 24 days, so this exception did apply.  The software was correct, though the help info did not explain why.

Note that this is not the only exception that could apply in your case.

Hope this helps someone